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Practice Questions - Time Value of Money

The document contains 13 practice questions related to calculating future and present values using time value of money concepts like simple and compound interest. The questions cover scenarios like investments, savings, retirement planning, loans and more. They require calculating future or present values given rates of return, time periods, lump sum deposits or withdrawals and other financial variables.

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Sedef Ergül
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130 views

Practice Questions - Time Value of Money

The document contains 13 practice questions related to calculating future and present values using time value of money concepts like simple and compound interest. The questions cover scenarios like investments, savings, retirement planning, loans and more. They require calculating future or present values given rates of return, time periods, lump sum deposits or withdrawals and other financial variables.

Uploaded by

Sedef Ergül
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Practice Questions – Time Value of Money

1. Gerold invested $6,200 in an account that pays 5 percent simple interest. How much
money will he have at the end of ten years?
2. What is the future value of $7,189 invested for 23 years at 9.25 percent compounded
annually?
3. Today, you earn a salary of $36,000. What will be your annual salary twelve years from
now if you earn annual raises of 3.6 percent?
4. You hope to buy your dream car four years from now. Today, that car costs $82,500. You
expect the price to increase by an average of 4.8 percent per year over the next four years.
How much will your dream car cost by the time you are ready to buy it?
5. You just received $225,000 from an insurance settlement. You have decided to set this
money aside and invest it for your retirement. Currently, your goal is to retire 25 years
from today. How much more will you have in your account on the day you retire if you can
earn an average return of 10.5 percent rather than just 8 percent?
6. You are depositing $1,500 in a retirement account today and expect to earn an average
return of 7.5 percent on this money. How much additional income will you earn if you
leave the money invested for 45 years instead of just 40 years?
7. Your father invested a lump sum 26 years ago at 4.25 percent interest. Today, he gave you
the proceeds of that investment which totaled $51,480.79. How much did your father
originally invest?
8. You want to have $35,000 saved 6 years from now to buy a house. How much less do you
have to deposit today to reach this goal if you can earn 5.5 percent rather than 5 percent
on your savings? Today's deposit is the only deposit you will make to this savings account.
9. When you retire 40 years from now, you want to have $1.2 million. You think you can earn
an average of 12 percent on your investments. To meet your goal, you are trying to decide
whether to deposit a lump sum today, or to wait and deposit a lump sum 2 years from
today. How much more will you have to deposit as a lump sum if you wait for 2 years
before making the deposit?
10. Fifteen 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?
11. 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?
12. Assume the total cost of a college education will be $300,000 when your child enters
college in 16 years. You presently have $75,561 to invest. What rate of interest must you
earn on your investment to cover the cost of your child's college education?
13. You are scheduled to receive $30,000 in two years. When you receive it, you will invest it
for 5 more years, at 8 percent per year. How much money will you have 7 years from
now?

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