Money and Present Value
1. If you deposit $10,000 in a bank account that pays 10 percent interest annually, how much money will be in your account after 5 years?
2. What is the present value of a security that promises to pay you $5,000 in 20 years? Assume that you can earn 7 percent if you were to invest in other securities of equal risk.
3. If you deposit money today into an account that pays 6.5 percent interest, how long will it take for you to double your money?
4. Your parents are planning to retire in 18 years. They currently have $250,000 and they would like to have $1,000,000 when they retire. What annual rate of interest would they have to earn on their $250,000 in order to reach their goal, assuming they save no more money?
5. What is the future value of a 5-year ordinary annuity that promises to pay you $300 each year? The rate of interest is 7 percent.
6. What is the future value of a 5-year annuity due that promises to pay you $300 each year? Assume that all payments are reinvested at 7 percent a year.
7. While you were a student in college, you borrowed $12,000 in student loans at an interest rate of 9 percent, compounded annually. If you repay $1,500 per year, how long, to the nearest year, will it take you to repay the loan?
8. What is the present value of a perpetuity of $100 per year if the appropriate discount rate is 7 percent? If interest rates in general were to double and the appropriate discount rate rose to 14 percent, what would happen to the present value of the perpetuity?
9. The prize in last week's Florida lottery was estimated to be worth $35 million. If you were lucky enough to win, the state will pay you $1.75 million per year over the next 20 years. Assume that the first installment is received immediately.
a. If interest rates are 8 percent, what is the present value of the prize?
b. If interest rates are 8 percent, what is the future value after 20 years?
c. How would your answers change if the payments were
2. What is the present value of a security that promises to pay you $5,000 in 20 years? Assume that you can earn 7 percent if you were to invest in other securities of equal risk.
3. If you deposit money today into an account that pays 6.5 percent interest, how long will it take for you to double your money?
4. Your parents are planning to retire in 18 years. They currently have $250,000 and they would like to have $1,000,000 when they retire. What annual rate of interest would they have to earn on their $250,000 in order to reach their goal, assuming they save no more money?
5. What is the future value of a 5-year ordinary annuity that promises to pay you $300 each year? The rate of interest is 7 percent.
6. What is the future value of a 5-year annuity due that promises to pay you $300 each year? Assume that all payments are reinvested at 7 percent a year.
7. While you were a student in college, you borrowed $12,000 in student loans at an interest rate of 9 percent, compounded annually. If you repay $1,500 per year, how long, to the nearest year, will it take you to repay the loan?
8. What is the present value of a perpetuity of $100 per year if the appropriate discount rate is 7 percent? If interest rates in general were to double and the appropriate discount rate rose to 14 percent, what would happen to the present value of the perpetuity?
9. The prize in last week's Florida lottery was estimated to be worth $35 million. If you were lucky enough to win, the state will pay you $1.75 million per year over the next 20 years. Assume that the first installment is received immediately.
a. If interest rates are 8 percent, what is the present value of the prize?
b. If interest rates are 8 percent, what is the future value after 20 years?
c. How would your answers change if the payments were