Exam 4: Introduction to Valuation: the Time Value of Money

Your coin collection contains ten 1949 silver dollars.If your grandparents purchased the coins for their face value when they were new, how much will your collection be worth when you retire in 2065, assuming the coins appreciate at an annual rate of 5.1 percent?

You have $12,500 you want to invest for the next 30 years.You are offered an investment plan that will pay you 7 percent per year for the next 10 years and 9.5 percent per year for the last 20 years.How much will you have at the end of the 45 years?

Lester had $6,270 in his savings account at the beginning of this year.This amount includes both the $6,000 he originally invested at the beginning of last year plus the $270 he earned in interest last year.This year, Lester earned a total of $282.15 in interest even though the interest rate on the account remained constant.This $282.15 is best described as:

Which one of the following is the correct formula for computing the present value of $600 to be received in 6 years? The discount rate is 7 percent.

What is the future value of $8,000 invested today and held for 15 years at 8.5 percent compounded annually?

Travis invests $5,500 today into a retirement account.He expects to earn 9.2 percent, compounded annually, on his money for the next 13 years.After that, he wants to be more conservative, so only expects to earn 6 percent, compounded annually.How much money will he have in his account when he retires 25 years from now, assuming this is the only deposit he makes into the account?

Tomas earned $89 in interest on his savings account last year and has decided to leave the $86 in his account this coming year so it will earn interest.This process of earning interest on prior interest earnings is called:

You want to have $35,000 in cash to buy a car 3 years from today.You expect to earn 3.6 percent, compounded annually, on your savings.How much do you need to deposit today if this is the only money you save for this purpose?

Lew has $3,600 that he wants to invest for 5 years.He can invest this amount at his credit union and earn 2.2 percent simple interest.Or, he can open an account at Compass Bank and earn 2.15 percent interest, compounded annually.If he decides to invest at Compass Bank for 5 years, he will:

Rob wants to invest $15,000 for 7 years.Which one of the following rates will provide him with the largest future value?

Which one of the following will increase the present value of a lump-sum future amount to be received in 15 years?

You have just made your first $5,000 contribution to your retirement account.Assuming you earn a rate of return of 5 percent and make no additional contributions, what will your account be worth when you retire in 35 years? What if you wait for 5 years before contributing?

You have been told that you need $15,000 today for every $50,000 you want when you retire 30 years from now.What rate of interest was used in the present value computation? Assume interest is compounded annually.

The present value of a lump-sum future amount:

Roberto just deposited $11,500 into his savings account at Security Savings Bank.The bank will pay ..55 percent interest, compounded annually, on this account.How much interest on interest will he earn over the next 6 years?

Today, you deposit $2,500 in a bank account that pays 3.6 percent simple interest.How much interest will you earn over the next 5 years?

The future value of a lump-sum investment will increase if you:

You just won $17,500 and deposited your winnings into an account that pays 6.7 percent interest, compounded annually.How long will you have to wait until your winnings are worth $50,000?

At 10 percent interest, how long does it take to triple your money?

Sixty years ago, your grandparents opened two savings accounts and deposited $250 in each account.The first account was with City Bank at 3.6 percent, compounded annually.The second account was with Country Bank at 3.65 percent, compounded annually.Which one of the following statements is true concerning these accounts? (Do not round intermediate calculations.)