hw in finance
Time value of money worksheet # 1 (5.1 to 5.3). BFIN 3321
Use your calculator to complete the following problems. Show your work and highlight your answer. Upload your solution on blackboard.
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2. Your parents will retire in 18 years. They currently have $200,000 and they think they will need $1,000,000 at retirement. What annual interest rate must they earn to reach their goal, assuming they don’t save any additional funds?
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3. If you deposit $50,000 in an account that pays 5% annual interest, how long will it take to double your money?
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4. Rebecca deposited $300 in an account that pays 6% compounded semiannually. How much money will she have in the account 5 years from now?
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5. Jerry has $200,000 in his savings account. How much money did he deposit in the account 10 years ago if he earned 4% compounded monthly?
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6. Amanda deposited $20,000 in an account that pays 8% annually. How long will it take her to triple the money if interest is paid every quarter?
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Ordinary Annuity vs. Annuity Due.
7. At the end of each year you deposit $1,200 in a retirement account that pays 6%. How much money will you accumulate for your retirement if you plan to retire 40 years from now?
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8. Starting today Andrew will deposit $750 per year in a retirement account that pays 6%. How much money will he accumulate for his retirement if he plans to retire 40 years from now?
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9. You are looking into an investment that will pay you $5,000 per year for the next 8 years. If you require a 9% return, what is the most you would pay for this investment?
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10. If today you pay $28,000 in exchange for an 8%, 15 year annuity, what will be the annual cash flow?
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11. You will buy a house for $150,000. Your mortgage bank will lend you the money at 6% for 15 years. How much will you have to pay every month?
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12. An insurance company is trying to sell you an investment policy that will pay you and your heirs $20,000 per year forever. If the required return on the investment is 7%, how much will you pay for the policy?
13. You bought a car for $15,000. You gave the dealer $5,000 as a down payment. The balance will be financed with a 4 year loan with an interest rate of 5%. What will your monthly payment be?
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14. Calculate the effective annual rates for each of the following cases:
| Stated Rate (APR) | Number of Times Compounded | Effective Rate (EAR) |
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| 12% | Monthly | |
| 6% | Semiannually |
15. You just bought a house for $150,000. You have agreed to make 5 payments at the end of the year for 5 years with an interest rate of 5%. What will the annual payment be? Create a loan amortization schedule.
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16. A first-round draft choice quarterback has been signed to a three-year, $25 million contract. The details provide for an immediate cash bonus of $2 million. The player is to receive $5 million in salary at the end of the first year, $8 million the next, and $10 million at the end of last year. Assuming a 15% discount rate, is the package worth $25 million? If not, how much is it worth?
17. You are evaluating an investment from a large financial services firm. The investment promises an initial payment of $8,000 at the end of this year and subsequent payments that will grow at a rate of 4% annually. If you use a 7 % discount rate for investments like this, what is the value of this investment?
