# Time Value of Money

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1. If Mrs. Beach wanted to invest a lump sum of money today to have $100,000 when she retired at 65 (she is 40 years old today) how much of a deposit would she have to make if the interest rate on the C.D. was 5%?

a. What would Mrs. Beach have to deposit if she were to use high quality corporate bonds an earned an average rate of return of 7%.

b. What would Mrs. Beach have to deposit if she were to use common stock and earned an average rate of return of 11%.

c. What type of a problem is this? ___________

2. If you had a payment that was due you in 5 years for $50,000 and you could earn a 5% rate of return, how much would you accept as payment today for this payment in the future?

a. If your rate of return is 8%, how much would you accept as payment today?

b. If your rate of return is 10%, how much would you accept as payment today?

c. What type of a problem is this? ___________

3. You want to save enough money to retire as a millionaire. If you could earn 10% with common stocks, how much would you have to set aside per year to have $1,000,000 when you are 65?

a. If you were going to make a deposit monthly, how much would you have to set aside per month to have $1,000,000 when you are 65?

b. If you were able to earn 11%, how much would you have to set aside per month to have $1,000,000 when you are 65?

c. What type of a problem is this? ___________

4. If you were going to buy your office from Mrs. Beach for $500,000 with a 10% down payment, 15 years financing with a 6% interest rate, how much would your payments be each month?

a. What would be the principal and interest payment on the first payment?

b. What would be the principal and interest payment on the twelfth payment?

c. What type of a problem is this?...

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