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Please Answer All The Questions.: Tutorial 4: Time Value of Money

This document provides a tutorial on time value of money concepts. It includes 7 questions covering topics like future and present value calculations for lump sums and annuities, interest rates, and retirement savings plans. Formulas for future value, present value, and future/present value of an annuity are provided and applied to calculate unknown values in various time value of money scenarios.

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Muntasir Ahmmed
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157 views

Please Answer All The Questions.: Tutorial 4: Time Value of Money

This document provides a tutorial on time value of money concepts. It includes 7 questions covering topics like future and present value calculations for lump sums and annuities, interest rates, and retirement savings plans. Formulas for future value, present value, and future/present value of an annuity are provided and applied to calculate unknown values in various time value of money scenarios.

Uploaded by

Muntasir Ahmmed
Copyright
© © All Rights Reserved
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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TUTORIAL 4: TIME VALUE OF MONEY

DUE: 29 APRIL 2021

Please answer all the questions.


1. To what amount will the following investments accumulate?

a. $5,000 invested for 10 years at 10 percent compounded annually

FVn=PV(1+r)n

= $5000(1+0.1)10

=$5,000(2.5937)

=$12968.5

b. $8,000 invested for 7 years at 8 percent compounded annually

FVn=PV(1+r)n

= $8000(1+0.08)7

=$8,000(1.7138)

=$13,710.4

2. How many years will the following take?

a. $500 to grow to $1,039.50 if invested at 5 percent compounded annually

FVn=PV(1+r)n

$1039.5=$500(1+0.05) n

1.05n=2.079

1.05n=(1.05)15

n= 15 years

b. $35 to grow to $53.87 if invested at 9 percent compounded annually

FVn=PV(1+r)n

$53.87=$35 (1+0.09)n
TUTORIAL 4: TIME VALUE OF MONEY
DUE: 29 APRIL 2021

1.54=(1.09)n

(1.09)5=(1.09)n

n=5 years

3. At what annual rate would the following have to be invested?


a. $500 to grow to $1,948.00 in 12 years
FV=PV(1+r)n
$1948=$500(1+r)12
(1+r)12=1948/500
(1+r)12= 3.896
1+r=1012
r=0.12 @ 12%

b. $300 to grow to $422.10 in 7 years


FV=PV(1+r)n
$422.10=$300(1+r)7
(1+r)7=422.10/300
(1+r)7=1.407
1+r=1.4071/7
r=4.99 @ 5%

4. What is the present value of the following future amounts?


a. $800 to be received 10 years from now discounted back to the present at 10
percent
PV=FV/(1+r)n
=800/(1+0.1)10
=800/2.59
=$308.8
b. $300 to be received 5 years from now discounted back to the present at 5
percent
TUTORIAL 4: TIME VALUE OF MONEY
DUE: 29 APRIL 2021

PV=FV/(1+r)n
=300/(1+0.05)5
=300/1.2763
=$235.05

5. What is the accumulated sum of each of the following streams of payments?


a. $500 a year for 10 years compounded annually at 5 percent
FVA=PMT{(1+r)n-1/r}
=500{(1+0.05)10-1/0.05}
=500(12.58)
=$6288.95

b. $100 a year for 5 years compounded annually at 10 percent


FVA=PMT{(1+r)n-1/r}
=100{1+0.1)5-1/0.1}
=100(6.1051)
=$610.51

6. What is the present value of each of the following annuities?


a. $2,500 a year for 10 years discounted back to the present at 7 percent
PVA=PMT[1-(1+r)-n/r]
=2500[1-(1+0.07)-10/0.07
=2500(7.024)
=$17,558.95
b. $70 a year for 3 years discounted back to the present at 3 percent
PVA=PMT[1-(1+r)-n/r]
=70[1-(1+0.03)-3/0.03
=70(2.8286)
=$198
TUTORIAL 4: TIME VALUE OF MONEY
DUE: 29 APRIL 2021

7. Pension fund offers two types of plans for retirement, which is 25 years away. Plan 1
requires you to have a deposit of $1,000 each year during the first 10 years—a total
of $10,000, after which Pension fund will keep the sum for the remaining 15 years.
With Plan 2 you do not need to deposit anything for the first 10 years, but will have
to deposit $1,000 for the remaining 15 years—a total of $15,000. How much you can
save under each plan for your retirement date, if the annual return you receive is 6
percent?
Plan 1: FVA
PMT=$1000
R=6%, n=10 years
FVA= PMT {(1+r)n-1}/r
=1000{(1+0.06)10-1}/0.06
=$13181
Assume FVA in $X value

Plan 2: FVA
PMT=$1000
r=6%
n=15
FVA= PMT {(1+r)n-1}/r
=1000{(1+0.06)15-1}/0.06
=1000(23.276)
=$23276

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