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Time Value

This document contains 5 word problems involving calculations of present value, future value, and interest compounded annually and quarterly. The solutions provided calculate: [1] the present value of a 10,000 perpetuity with 7% interest; [2] the principal needed today for $150,000 in 5 years at 6% interest compounded semiannually; [3] the future value of depositing $45,000 at 4% interest compounded quarterly over 5 years; [4] the annual deposit needed over 20 years for $1,200,000 in 10 years at 9% interest; and [5] the number of years for $50,000 at 6% interest to reach $250,000

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41 views2 pages

Time Value

This document contains 5 word problems involving calculations of present value, future value, and interest compounded annually and quarterly. The solutions provided calculate: [1] the present value of a 10,000 perpetuity with 7% interest; [2] the principal needed today for $150,000 in 5 years at 6% interest compounded semiannually; [3] the future value of depositing $45,000 at 4% interest compounded quarterly over 5 years; [4] the annual deposit needed over 20 years for $1,200,000 in 10 years at 9% interest; and [5] the number of years for $50,000 at 6% interest to reach $250,000

Uploaded by

tori_echo
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Alexa Michelle C.

Panizales

1. What is the value of a 10,000 perpetuity if interest is 7?

Answer:

C
PV =
r
10,000
¿
0.07
¿ 142,857.14

2. How much would you have to deposit today to have 150,000 in 5 years at 6% interest per annum
compounded semiannually?

Answer:

FV
PV =
( 1+ i ) N

150,000
¿
(1+ 0.03 )10

150,000
¿
(1.03)10

150,000
¿
1.3439

¿ 111,614.09

3. If you deposit 45000 into an account earning 4% interest per annum compounded quarterly, how much
would you have in 5 years?

Answer:

FV +¿ PV (1+i)N
¿ 45,000 ( 1+0.01 )20
20
¿ 45,000 ( 1.01 )

¿ 45,000 ( 1.2201 )
¿ 54,908.55

4. You plan to retire in 20 years. Assuming you’ll live ten years after retirement. You want to be able to draw
out of your savings at the rate of 120,000 per year. How much would you have to pay in equal annual
deposits until retirement to meet your objectives? Assume interest remains 9%?
Answer:
Pmt= 120,000x 10(years)
= 1,200,000
PV =Pmt ( 1+i )− N
−20
¿ 1,200,000 ( 1+.09 )
¿ 1,200,000 ( 1.09 )−20
¿ 1,200,000 ( 0.17843 )
¿ 214,117.67

5. You deposit 50,000 today that pays 6% interest compounded annually. How long does it take before the
balance in your account is 250,000?

Answer:

FV =PV (1+i ) N
N
250,000=50,000 ( 1+.06 )

250,000
=1.06 N
50,000

5=1.06N

log 5
N=
log1.06

0.699
N=
0.025

¿ 27.96

¿ 28 years

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