Exam 4: Time Value of Money 1: Analyzing Single Cash Flows

An average home in Chicago costs $295,000. If house prices are expected to grow at an average rate of 3 percent per year, what will a house cost in five years?

You just won the lottery and after taxes you have $32,000. You want to have $1,000,000 by the time you are 65, which is 45 years from now. Assuming that you can earn 9 percent each year on your money, how much (in dollars) of the $32,000 must you invest today?

Assume that you borrow $2,000 from your sister and that you will pay her back in one lump sum. She charges you 9 percent interest in year 1 and increases the rate by 1 percent per year until the loan is paid off. How much will you owe if you wait until year 3 to pay off the loan?

Approximately how many years does it take to double a $300 investment when interest rates are 8 percent per year?

Which of the following statements is incorrect with respect to time lines?

Scenario A: At age 19 you invest $1,500 that earns 8 percent per year. Scenario B: At age 30 you invest $1,500 that earns 13 percent per year. Under which scenario would you have more money at age 55 and what is the dollar difference at age 55 between the two scenarios?

You want to retire in 40 years and you have $40,000 saved in your retirement account. You believe you will need $1,500,000 upon retirement. What rate will you need to earn on the account to achieve this goal?

What is the value in year 10 of a $1,000 cash flow made in year 5 if interest rates are 9 percent in years 6 and 7, and increase to 13 percent in the remaining years?

If an average home in your town currently costs $300,000, and house prices are expected to grow at an average rate of 5 percent per year, what will an average house cost in 10 years?

A deposit of $1,000 earns the following interest rates? 8 percent in the first year, 7 percent in the second year, and 8 percent in the third year. What would be the third year future value?

What is the future value of $600 invested for four years earning an 11 percent interest rate annually?

Five years ago, sales were $4 million. Today your company's sales are $10 million. What annual rate have sales been growing?

Consider a $1,000 deposit earning 7 percent interest per year for four years. How much total interest is earned on the original deposit (excluding interest earned on interest)?

At age 25 you invest $2,000 that earns 6 percent each year. At age 35 you invest $2,000 that earns 9 percent per year. In which case would you have more money at age 60?

Approximately how many years does it take to double a $475 investment when interest rates are 8 percent per year?

How long will it take $4,000 to reach $4,500 when it grows at 8 percent per year?

What information would you need to know to solve a rate of return problem?

A $1,000 investment has doubled to $2,000 in seven years. How much longer will it take for the investment to reach $5,000 if it continues to earn the same rate?

You want to retire in 25 years and you have just inherited $300,000. You believe you will need $1,450,000 upon retirement. What rate will you need to earn on the account to achieve this goal?

Which is more valuable, receiving $1,000 today or receiving $1,200 in 3 years if interest rates are 7 percent?