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

-Fourteen years ago,your parents set aside $7,500 to help fund your college education.Today,that fund is valued at $26,180.What rate of interest is being earned on this account?

-You want to deposit sufficient money today into a savings account so that you will have $1,000 in the account three years from today.Explain why you could deposit less money today if you could earn 3.5 percent interest rather than 3 percent interest.

-Some time ago,Julie purchased eleven acres of land costing $36,900.Today,that land is valued at $214,800.How long has she owned this land if the price of the land has been increasing at 6 percent per year?

Andy deposited $3,000 this morning into an account that pays 5 percent interest,compounded annually.Barb also deposited $3,000 this morning into an account that pays 5 percent interest,compounded annually.Andy will withdraw his interest earnings and spend it as soon as possible.Barb will reinvest her interest earnings into her account.Given this,which one of the following statements is true?

-Theo needs $40,000 as a down payment for a house 6 years from now.He earns 2.5 percent on his savings.Theo can either deposit one lump sum today for this purpose or he can wait a year and deposit a lump sum.How much additional money must he deposit if he waits for one year rather than making the deposit today?

-Ten years ago,Jackson Supply set aside $130,000 in case of a financial emergency.Today,that account has increased in value to $330,592.What rate of interest is the firm earning on this money?

-Your coin collection contains fifty-four 1941 silver dollars.Your grandparents purchased them for their face value when they were new.These coins have appreciated at a 10 percent annual rate.How much will your collection be worth when you retire in 2060?

You want to have $1 million in your savings account when you retire.You plan on investing a single lump sum today to fund this goal.You are planning on investing in an account which will pay 7.5 percent annual interest.Which of the following will reduce the amount that you must deposit today if you are to have your desired $1 million on the day you retire? I.Invest in a different account paying a higher rate of interest. II.Invest in a different account paying a lower rate of interest. III.Retire later. IV.Retire sooner.