Exam 3: The Time Value of Money Part 1

A manufacturer of LCD televisions has seen sales increase from 125,000 units per year to 500,000 units per year in 8 years. What has been the firm's average annual rate of increase in the number of television sets sold? Use the Rule of 72 to determine your answer.

Given a time period, an interest rate, and a future value, a person could solve for a present value.

The dividends per share paid by Going Going Gone Inc. (GGG) doubled from a starting value of $1.50 in 2000 to a value of $3.00 in 2006 (a six-year period). What was the approximate average annual rate of growth of GGG's dividends per share? Use the Rule of 72 to determine your answer.

An investment of $100 today is worth $116.64 at the end of two years if it earns an annual interest rate of 8%. How much interest is earned in the first year and how much in the second year of this investment?

The question "How much will I have in my account at a specific point in the future, given a specific interest rate?" is best answered by which form of the TVM equation?

If you invest $1,800 today, how much money will you have in 5 years?

If you invest $5,000 today at an annual interest rate of 6.35%, how much money will you have for your daughter's college education in 18 years?

Your finance professor suggests that you should have $2,500,000 in your retirement portfolio before you even THINK about retiring. Recently, your uncle sold valuable California real estate and handed you a check for $300,000. (This is the amount you have after paying taxes. He is now your favorite uncle.) How much of the $300,000 must you set aside today if you invest a portion of the money at an annual rate of 8.0% and you wish to retire in 35 years with the amount suggested by your finance professor?

The question "At what rate is my money growing over time?" is best answered by which form of the TVM equation?

The question "What is the current value of an amount of cash that will be received at a specific time in the future?" is best answered by which form of the TVM equation?

Which of the following investments has a larger future value? A $100 investment earning 10% per year for 5 years or a $100 investment earning 5% per year for 10 years?

Given enough time, you could double your money with a risk-free investment.

You have $5,000 in an index mutual fund. At an average annual rate of return of 10% per , this investment should exceed a value of $500,000 by the time you retire in 40 years.

The one-time payment of money at a future date is often called a ________.

In two years Rocky plans to enroll at Whatsamatta U., a prestigious university in Frostbite Falls, MN. If the current tuition is $23,500 per year and is expected to increase at a rate of 6% per year, how much will Rocky pay in tuition his first year of school? (His first tuition payment is exactly two years from today.) In his fourth year? (His last tuition payment is exactly 5 years from today) (Rounded to the nearest dollar.)

Rory has $2,500 but needs $5,000 to purchase a new golf cart. If he can invest his money at a rate of 12% per year, approximately how many years will it take the money in Rory's account to grow to $5,000? Use the Rule of 72 to determine your answer. Note: The golf cart's price may have changed by the time Rory's account reaches a value of $5,000.

Four years ago, Robert's annual salary was $52,500. Today, he earns $73,800. What has been the average annual rate of growth of Robert's salary?

I Assume you put $2,000 into a tax-free investment and leave it there for 45 years at an annual rate of 8%. According to the Rule of 72, your investment will grow to a value of almost $64,000.

You could double your money in about 9 years if you could earn an annual rate of return of what? Use the Rule of 72 to determine your answer.

Which of the following actions will INCREASE the present value of an investment?