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

You are scheduled to receive $30,000 in three years. When you receive it, you will invest it for seven more years at 5.5% per year. How much will you have at the end of this time? What would be An equivalent Present Value?

You want to have $260,000 saved 15 years from now. How much less do you have to deposit today to reach this goal if you can earn 8% rather than 7% on your savings?

Kurt invests $1,000 at a 10% rate of return for twenty years. The return is based on simple interest that is paid at the end of each year. Which one of the following is correct?

You setup an educational savings plan that will pay $15,000 to your newborn child in 18 years. If the plan uses a rate of 4.75% per year, what was contributed into this plan?

Kay purchased some land costing $124,600. Today, that same land is valued at $179,400. How long has she owned this land if the price of land has been increasing at 6% per year?

Chia Burgers began operations by opening 115 restaurants in Western Canada at the end of its first year of operations. By the end of year 2, an additional 5 restaurants were opened. By the end of Year 3, there were 130 restaurants operational. At the end of year 5, there were 138 total Restaurants. If the number of eating establishments is expected to grow in year 6 at the same rate as the Percentage increase in year 5, how many new eating establishments will be added in year 6?

The higher the discount rate, the higher the present value.

Thirty years ago, your father invested $6,000. Today that investment is worth $67,270.98. What is the average rate of return your father earned on this investment?

Stephen has $2,400 to invest. Which one of the following investment options will produce the largest future value for him?

Nadine invests $1,000 at 8% when she is 25 years old. Neal invests $1,000 at 8% when he is 40 years old. Both investments compound interest annually. Both Nadine and Neal retire at age 60. Which one of the following statements is correct?

The future value of a single sum will increase more rapidly when the frequency of compounding increases.

Mary plans on saving $1,000 a year for ten years. She would like to know the value of these savings today. Mary should solve for the:

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 over the same time period?

Antoinette needs $20,000 as a down payment for a house five years from now. She earns 4% on her savings. Antoinette can either deposit one lump sum today for this purpose or she can wait a Year and deposit a lump sum. How much additional money must Antoinette deposit if she waits for One year rather than making the deposit today?

In 1889, Vincent Van Gogh's painting, "Sunflowers," sold for $125. One hundred years later it sold for $36 million. Had the painting been purchased by your great-grandfather and passed on to you, What annual return on investment would your family have earned on the painting?

Monika has $6,000 in her investment account. She wants to withdraw her funds when her account reaches $10,000. A decrease in the rate of return she earns will:

Which one of the following statements is correct if you invest $100 in an account at a simple interest rate of 4% for five years?

On your tenth birthday, you received $100 which you invested at 4.5% interest, compounded annually. That investment is now worth $3,000. How old are you today?

Compounding is the process of finding the present value of some future amount.

Thirty years ago, your father invested $11,000. Today, that investment is worth $287,047. What is the average annual rate of return your father earned on his investment?