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

You have $2,158 today in your savings account. How long must you wait for your savings to be worth $4,000 if you are earning 2.1 percent interest, compounded annually?

Roger just deposited $13,000 into his account at Market Place Bank. The bank will pay 2.3 percent interest, compounded annually, on this account. How much interest on interest will he earn over the next 15 years?

Jenny needs to borrow $16,000 for 3 years. The loan will be repaid in one lump sum at the end of the loan term. Which one of the following interest rates is best for Jenny?

Today, Tony is investing $16,000 at 6.5 percent, compounded annually, for 4 years. How much additional income could he earn if he had invested this amount at 7 percent, compounded annually?

You have been told that you need $21,600 today in order to have $100,000 when you retire 42 years from now. What rate of interest was used in the present value computation? Assume interest is compounded annually.

Sixty years ago, your grandparents opened two savings accounts and deposited $200 in each account. The first account was with City Bank at 3 percent, compounded annually. The second account was with Country Bank at 3.5 percent, compounded annually. Which one of the following statements is true concerning these accounts?

Thirteen years ago, you deposited $2,400 into an account. Eight years ago, you added an additional $1,000 to this account. You earned 8 percent, compounded annually, for the first 5 years and 5.5 percent, compounded annually, for the last 8 years. How much money do you have in your account today?

Your parents just gave you a gift of $15,000. You are investing this money for 12 years at 5 percent simple interest. How much money will you have at the end of the 12 years?

Six years from now, you will be inheriting $100,000. What is this inheritance worth to you today if you can earn 6.5 percent interest, compounded annually?

Ben invested $5,000 twenty years ago with an insurance company that has paid him 5 percent simple interest on his funds. Charles invested $5,000 twenty years ago in a fund that has paid him 5 percent interest, compounded annually. How much more interest has Charles earned than Ben over the past 20 years?

Jamie earned $180 in interest on her savings account last year. She has decided to leave the $180 in her account so that she can earn interest on the $180 this year. The interest Jamie earns this year on this $180 is referred to as:

The present value of a lump sum future amount:

Which one of the following will increase the present value of a lump sum future amount? Assume the interest rate is a positive value and all interest is reinvested.

Precision Engineering invested $110,000 at 6.5 percent interest, compounded annually for 4 years. How much interest on interest did the company earn over this period of time?

Lisa has $1,000 in cash today. Which one of the following investment options is most apt to double her money?

Assume the total cost of a college education will be $285,000 when your child enters college in 22 years. You presently have $35,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your child's college education?

The relationship between the present value and the time period is best described as:

Suppose that in 2010, a $10 silver certificate from 1898 sold for $11,200. For this to have been true, what would the annual increase in the value of the certificate have been?

You want to have $25,000 for a down payment on a house 6 years from now. If you can earn 6.5 percent, compounded annually, on your savings, how much do you need to deposit today to reach your goal?

You're trying to save to buy a new $210,000 Ferrari. You have $38,000 today that can be invested at your bank. The bank pays 4.1 percent annual interest on its accounts. How long will it be before you have enough to buy the car?