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

Six years ago, Marti invested $3,500 in an account. No other investments or withdrawals have been made. Today the account is worth $7,403.16. What rate of return has Marti earned thus far?

Your older sister deposited $5,000 today at 8% interest for five years. You would like to have just as much money at the end of the next five years as your sister. However, you can only earn 6% Interest. How much more money must you deposit today than your sister if you are to have the Same amount at the end of five years?

You hope to buy your dream house six years from now. Today your dream house costs $189,900. You expect housing prices to rise by an average of 4.5% per year over the next six years. How Much will your dream house cost by the time you are ready to buy it?

What is the rate needed (compounded monthly) for $10,000 to mature to $25,000 in 15 years?

Provide a definition of future value (FV).

You received a $1 savings account earning 5% on your 1st birthday. How much will you have in the account on your 40th birthday if you don't withdraw any money before then?

You are scheduled to receive $18,000 in five years. When you receive it, you will invest it for five more years at 8.6% per year. How much will you have at the end of this time? What would be an Equivalent Present Value?

Five years ago, Precision Tool set aside $50,000 in case of a financial emergency. Today, that account has increased in value to $64,397. What rate of interest is the firm earning on this money?

Forty years ago, your father invested $2,500. Today that investment is worth $107,921. What is the average rate of return your father earned on his investment?

An account was opened with $1,000 three years ago. Today, the account balance is $1,157.63. If the account earns simple interest, how long will it take until the account has earned a total of $225 in Interest?

At a 6% rate of interest you will double your money in approximately ___ years.

The larger the present value factor, the larger the present value.

Interest earned only on the original principal amount invested is called _____ interest.

You deposit $500,000 in a higher risk investment. Three years later, you receive $711,900 and withdraw your funds. Given this information calculate the interest earned at the end of year 3.

Jeff invests $3,000 in an account that pays 7% simple interest. How much more could he have earned over a 20-year period if the interest had compounded annually?

Last year, you deposited $25,000 into a retirement savings account at a fixed rate of 7.5%. Today, you could earn a fixed rate of 8% on a similar type account. However, your rate is fixed and cannot Be adjusted. How much less could you have deposited last year if you could have earned a fixed Rate of 8% and still have the same amount as you currently will when you retire 40 years from Today?

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?

An investor is considering depositing $20,000 and making monthly contributions of $250 per month into investment. If the investor wants to have a future value of $50,000, what will be the rate of interest if he wishes to have this amount in 5 years? Assume interest is compounded monthly.

Many economists view a 3% annual inflation rate as "acceptable". Assuming a 3% annual increase in the price of automobiles, how much will a new Suburban cost you five years from now, if today's Price is $48,000?

$15,000 is invested into a plan earning 5% compounded quarterly for the first ten years. What will the rate of interest have to be for the next ten years (compounded monthly) for the value to reach $40,000?