TVM Exercises
TVM Exercises
Be sure to use the following format for your answers:
TVM Table (X%, Xn)
Pmt (factor)
Answer
1. You invest $5,000 at 6% compounded annually for 10 years. How much will you have at the end of year 10?
FV Table (6%, 10n)
$5,000 (1.791)
$8,955
2. You need $200,000 10 years from now and know of an investment that pays a 10% return. How much do you need to invest today to achieve your goal?
PV Table (10%, 10n)
$200,000 (0.386)
$77,200
3. You are required to leave a $1,000 security deposit for 8 years. The deposit as well as interest compounded at 5% per year. How much will you receive at the end of 8 years?
FV Table (5%, 8n)
$1,000 (1.478)
$1,478
4. How much would you have to invest to receive $20,000 …show more content…
10% for 5 years PV Table (10%, 5n) $10,000 (0.621) $6,210
8. What would $10,000 invested today be worth in the following time periods, assuming annual compounding: a. 7% for 4 years FV Table (7%, 4n) $10,000 (1.311) $13,110
c. 5% for 4 years FV Table (5%, 4n) $10,000 (1.216) $12,160
9. You estimate a college education will cost $100,000 in 15 years when your child will be ready for college. How much do you need to deposit today to pay for the education if you can earn the following on your investments? (Try guessing which would be better first!)
Annual Rate Compounding Frequency a. 8% annually PV Table (8%, 15n) $100,000 (0.315) $31,500
b. 6% semiannually PV Table (6%, 30n) $100,000 (0.174) $17,400
10. Alan and Bob are famous athletes. Alan signed a $15M contract that pays $3M per year for 5 years. Bob’s $14M contract pays $4M now and $2M per year for 5 years. The interest rate is 10%. Who is better paid when you compare current value? By how much?
Alan
FVA Table (10%, 5n)
$3,000,000 (6.110)
Be sure to use the following format for your answers:
TVM Table (X%, Xn)
Pmt (factor)
Answer
1. You invest $5,000 at 6% compounded annually for 10 years. How much will you have at the end of year 10?
FV Table (6%, 10n)
$5,000 (1.791)
$8,955
2. You need $200,000 10 years from now and know of an investment that pays a 10% return. How much do you need to invest today to achieve your goal?
PV Table (10%, 10n)
$200,000 (0.386)
$77,200
3. You are required to leave a $1,000 security deposit for 8 years. The deposit as well as interest compounded at 5% per year. How much will you receive at the end of 8 years?
FV Table (5%, 8n)
$1,000 (1.478)
$1,478
4. How much would you have to invest to receive $20,000 …show more content…
10% for 5 years PV Table (10%, 5n) $10,000 (0.621) $6,210
8. What would $10,000 invested today be worth in the following time periods, assuming annual compounding: a. 7% for 4 years FV Table (7%, 4n) $10,000 (1.311) $13,110
c. 5% for 4 years FV Table (5%, 4n) $10,000 (1.216) $12,160
9. You estimate a college education will cost $100,000 in 15 years when your child will be ready for college. How much do you need to deposit today to pay for the education if you can earn the following on your investments? (Try guessing which would be better first!)
Annual Rate Compounding Frequency a. 8% annually PV Table (8%, 15n) $100,000 (0.315) $31,500
b. 6% semiannually PV Table (6%, 30n) $100,000 (0.174) $17,400
10. Alan and Bob are famous athletes. Alan signed a $15M contract that pays $3M per year for 5 years. Bob’s $14M contract pays $4M now and $2M per year for 5 years. The interest rate is 10%. Who is better paid when you compare current value? By how much?
Alan
FVA Table (10%, 5n)
$3,000,000 (6.110)