Exam 5: Introduction to Valuation: the Time Value of Money

You would like to give your daughter $50,000 towards her college education 15 years from now. How much money must you set aside today for this purpose if you can earn 9% on your investments?

You wish to have $400,000 at the end of twenty-five years. In the last ten years, you contribute $1,000 semi-annually at a rate of 5.8% compounded monthly. During the middle ten years, you withdraw $750 quarterly at a rate of 4.5% compounded annually. Given this information, determine the initial deposit that has to be made at the start of the first five years at a rate of 4% compounded monthly.

Your big brother deposited $10,000 today at 9% interest for 6 years. You would like to have just as much money at the end of the next 6 years as your brother. However, you can only earn 7.5% interest. How much more money must you deposit today than your brother did if you are to have the same amount at the end of the 6 years?

An account paying annual compound interest was opened with $1,000 ten years ago. Today, the account balance is $1,500. If the same interest rate is offered on an account paying simple interest, how much income would be earned each year over the same time period?

Tom and Antonio both want to open savings accounts today. Tom wants to have $1,000 in his savings account six years from now. Antonio wants to have $1,000 in his savings account three years from now. Tom needs to deposit more money into his account today than does Antonio.

The future value of C invested at r% for t periods is:

The present value equation is:

Provide a definition of discount rate.

Fresh out of college, you are negotiating with your prospective new employer. They offer you a signing bonus of $2,000,000 today or a lump sum payment of $2,500,000 three years from now. If you can earn 7% on your invested funds, which of the following is true?

If $20,000 was invested at 5% over five years, determine the difference if this investment was based on simple interest versus interest that was compounded annually.

Isabelle wants to invest $1,000. She wants to withdraw her money three years from now. Which bank should she use if she wishes to maximize her investment?

To create the same future value given a stated discount rate, you can:

Ten years ago, Joe invested $5,000. Five years ago, Marie invested $2,500. Today, both Joe and Marie's investments are each worth $8,500. Which one of the following statements is correct concerning their investments?

Tishie invests $3,000 today at a 9% rate of return. She wants to have $24,000 to give to her granddaughter Kathy for college 16 years from now. Which one of the following statements is correct concerning Tishie's situation?

Provide a definition of time value of money.

Interest earned on the reinvestment of previous interest payments is called _____________.

The price of fuel has tripled over the past fifteen years. Determine the rate of growth over this time period.

Today you earn a salary of $28,500. What will be your annual salary fifteen years from now if you earn annual raises of 3.5%?

On a financial calculator, the symbol "N" represents the:

The I.C. James Co. invested $10,000 six years ago at 5% simple interest. The I.M. Smart Co. invested $10,000 six years ago at 5% interest which is compounded annually. The I.C. James Co. will have an account value of $13,400.96 six years from now.