Question 1

Robin Clark has a cell phone that she uses only for emergencies. The cost of the phone is $40 a month. The cellular company is offering unlimited nights and weekends for an additional $10 a month ($120 a year). Robin thinks it would be "cool" to have this benefit and after all $10 a month is not so much. Show Robin how much she will have in 20 years if she invests this $120 a year at 9% instead of accepting the unlimited nights and weekends offer.

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Question 2

Flower Company is considering an investment which will return a lump sum of $2500000 six years from now. What amount should Flower Company pay for this investment to earn an 11% return?

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Question 3

Luis Rodriguez wants to buy a car in 3 years. He will need $3000 for a down payment. The annual interest rate is 9%. How much money must Luis invest today for the purchase?

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Question 4

Rob Honda plans to buy a home and can deposit $15000 for the purchase today. If the annual interest rate is 8% how much can Rob expect to have for a down payment in 5 years?

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Question 5

DMV leases a building for 20 years. The lease requires 20 annual payments of $12000 each with the first payment due immediately. The interest rate in the lease is 10%. What is the present value of the cost of leasing the building?

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Question 6

Amy Brown plans to buy a surround sound stereo system for $1100 after 3 years. If the interest rate is 6% how much money should Amy set aside today for the purchase?

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Question 7

Mandy How plans to buy an automobile and can deposit $3000 toward the purchase today. If the annual interest rate is 8% how much can Mandy expect to have as a down payment in 3 years?

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Question 8

Wingate Company borrowed $90000 on January 2 2017. This amount plus accrued interest of 6% compounded annually will be repaid at the end of 3 years. What amount will Wingate repay at the end of the third year?

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Question 9

Compute the future value of $6000 invested every year at an interest rate of 9%. You invest the money for 20 years with the first payment made at the end of the year.

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Question 10

Jose Reynolds deposited $10000 in an account paying interest of 4% compounded annually. What amount will be in the account at the end of 4 years?

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Question 11

Chang Company earns 12% on an investment that will return $400000 eleven years from now. What is the amount Chang Company should invest now to earn this rate of return?

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Question 12

Kim Black plans to buy a truck for $24000 after 3 years. If the interest rate is 6% how much money should Kim set aside today for the purchase?

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Question 13

Lamb Company deposited $15000 annually for 6 years in an account paying 5% interest compounded annually. What is the balance of the account at the end of the 6th year?

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Question 14

Pleasant Company has decided to begin accumulating a fund for plant expansion. The company deposited $80000 in a fund on January 2 2013. Pleasant will also deposit $40000 annually at the end of each year starting in 2013. The fund pays interest at 4% compounded annually. What is the balance of the fund at the end of 2017 (after the 2017 deposit)?

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Question 15

Martin Company issued $900000 10-year bonds and agreed to make annual sinking fund deposits of $72000. The deposits are made at the end of each year to a fund paying 5% interest compounded annually. What amount will be in the sinking fund at the end of the 10 years?

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Question 16

What is the present value of $90000 due 7 years from now discounted at 9%?
(b) What is the present value of $150000 due 5 years from now discounted at 12%?

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Question 17

If Kelly Cranford invests $11970 now she will receive $40000 at the end of 14 years. What annual rate of return will Kelly earn on her investment?

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Question 18

Bill Cigarettes acquired a bad habit of smoking in high school. Bill spends approximately $70 a month or $840 a year on cigarettes. He is not concerned with health issues but he is keenly aware of financial issues. Show Bill how much he would have at retirement in 20 years if he invested $840 a year at 8% instead of smoking.

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Question 19

Bill and Ellen Sweatt plan to invest $2500 a year in an educational IRA for their granddaughter Sloane Martin. They will make these deposits on January 2^nd of each year. Bill and Ellen feel they can safely earn 8%. How much will be in this account on December 31 of the 18^th year?

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Question 20

Frye Company is considering investing in an annuity contract that will return $50000 annually at the end of each year for 20 years. What amount should Frye Company pay for this investment if it earns an 8% return?

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Quiz 27: Time Value of Money