Finance Worksheet - Time Value of Money

1. You will be receiving $15,000 inheritance from your granny. She had invested $5,000 ten years ago. What return did she receive on her money?

2. What is the present value of an account worth $50,000 that has earned 6% interest over 4 years?

3. You choose to buy a house in 2 years and you need $20,000 for a down payment. Your mutual fund investment that you will draw from to get the down payment has produced 12% return. What amount should be in the account to grow to $20,000 within 2 years?

4. An immediate annuity will pay $15,000 per year for 15 years. What amount should be initially deposited if your annuity can earn 5.5%?

5. You decide to start your own company and borrow $150,000. You plan to fully amortize one-half of the loan with a balloon payment at the end of the term of the loan - in 10 years. What would be the annual payment? When the loan matures, how much must you pay to the lender if the interest rate on the loan is 4.5% (what is the final payment)?

6. What would be the final payment on a $750,000 loan? Your company is amortizing one-third of the loan and has a balloon payment at the end of the loan - in 8 years and interest is 3.8% (rounded)?

7. What rate of return did you earn on an account that started with payments of $1000 per year for 8 years and you receive a total of $15,000 (principal + interest) at the end of the eighth year?

8. You plan on buying a home that costs $200,000. The bank is offering you a 30-year mortgage at 6% interest with 2 points or 7.25% interest with no points. What is the monthly house note for each option. Which would you take?

9. You plan on buying a car that costs $24,000. The dealership is offering you 0% interest for 5 years or you can take a $3000 discount and 5% interest for five years. What is the monthly note under each option? Which should you take?

10. You will be buying a new car. The car costs $22,750. What would be your monthly note if you put $2,000 as a down payment on the car and interest rates are 8%? The loan is for 5 years.

11. You are putting $4000 per year into your retirement fund. If the account earns 4.5% return, how much would you have for retirement in 25 years?

12. You are considering buying a home that costs $154,000. Your 30-year mortgage would be at 6.2% interest with 2 points or 7.2% interest with no points. What is the monthly note under each option? Which would you choose?

13. If your retirement account has grown to be $500,000, what monthly income could you expect if the money is paid out for 20 years and earns 2.5% interest?

14. Your aunt made you a beneficiary of her insurance policy. It is worth $200,000 and it will earn 5% interest over your expected lifetime of 45 years. How much income could you get if you take the income beginning immediately (in other words the insurance is converted to an annuity due)?

15. You decide to purchase an IRA with regular payments of $8,000 per year for 25 years. Your annuity earns 8% interest.

a. How much would be in your retirement fund when you retire in 25 years?

b. What income could you expect to receive over the next 25 years if it maintains 4% interest rate?