Assignment: Time Value Money Problems

Complete the Problems below:

1. If you deposit $5,000 in a bank account that pays 8% interest annually, how much will your account balance be in 5 years?

2. What is the present value of a security that will pay $50,000 in 10 years if securities of equal risk pay 6%?

3. You are planning to retire in 25 years and currently have $250,000 in your retirement account. You think you will need $1,000,000 at retirement. What interest rate must you earn to achieve that goal, assuming no additional amounts are added to the savings account?

4. If you deposit money today in an account that pays 7% annual interest, how long will it take you to double your money?

5. You have $50,000 in a brokerage account, and you plan to deposit an additional $8,000 at the end of ever future year until your account total reaches $300,000. You expect to earn 10% annually on the account. How many years will it take you to reach your goal?

6. What is the future value of a 7%, 5-year ordinary annuity that pays $500 each year? If this was an annuity due, what would its future amount be?

7. You won the lottery, and they agree to give you $50,000 per year at the end of each year for the next 25 years, or you can take a lump sum today. If the lottery uses a discount rate of 6%, what would be the lump sum that you could take today?

8. You just borrowed $250,000 from a bank to purchase a new home and have to repay the bank in equal payments at the end of each year for the next 30 years. How much will the annual payments be if the loan interest rate is 5%?

9. Find how much $1,000 will under each of the following conditions:

1.12% compounded annually for 5 years

2.12% compounded semiannually for 5 years

3.12% compounded quarterly for 5 years.