Exam 4: Time Value of Money 1: Analyzing Single Cash Flows

Scenario A: At age 27, you invest $1,500 that earns 9 percent each year. Scenario B: At age 40, you invest $2,500 that earns 11 percent per year. Under which scenario do you accumulate more money by age 60?

What would be more valuable, receiving $1,895 today or receiving $3,450 in six years if interest rates are 8 percent?

A deposit of $500 earns the following interest rates? 5 percent in the first year, 6 percent in the second year, and 8 percent in the third year. What would be the third year future value?

At age 25 you invest $2,000 that earns 6 percent each year. At age 35 you invest $2,000 that earns 9 percent per year. In which case would you have more money at age 60?

Approximately how many years does it take to double a $475 investment when interest rates are 8 percent per year?

How are present values affected by changes in interest rates?

How much would be in your savings account in 12 years if you deposited $1,500 today? Assume the bank pays 5 percent per year.

How many years (and months) will it take $4 million to grow to $7 million with an annual interest rate of 12 percent?

Compute the present value of $9,000 paid in four years using the following discount rates: 4 percent in year 1, 5 percent in year 2, 4 percent in year 3, and 3 percent in year 4.

We call the process of earning interest on both the original deposit and on the earlier interest payments

A $2 million deposit earns 7 percent for 13 years. If the account earns 9 percent per year forever after that, how long will it take to grow to $5 million?

You want to retire in 40 years and you have $40,000 saved in your retirement account. You believe you will need $1,500,000 upon retirement. What rate will you need to earn on the account to achieve this goal?

A dollar paid (or received) in the future is

If an average home in your town currently costs $300,000, and house prices are expected to grow at an average rate of 5 percent per year, what will an average house cost in 10 years?

Scenario A: At age 19 you invest $1,500 that earns 8 percent per year. Scenario B: At age 30 you invest $1,500 that earns 13 percent per year. Under which scenario would you have more money at age 55 and what is the dollar difference at age 55 between the two scenarios?

What is the present value of a $500 payment in one year when the discount rate is 5 percent?

You invested $1,000 for five years in an account that earns 5 percent. However, today you learn that you are able to move the account into an investment that earns 10 percent. Which of the following statements is correct?

What annual rate of return is earned on a $900 investment when it grows to $2,500 in 15 years?

How many years will it take $100 to grow to $1,000 with an annual interest rate of 8 percent?

You invested $1,000 in the stock market one year ago. Today, the investment is valued at $750. What return did you earn? What return would you need to get next year to break even overall?