Time Value of Money - Sample Problems
1. If you wish to accumulate $140,000 in 13 years, how much must you deposit today in an
account that pays an annual interest rate of 14%?
2. What will $247,000 grow to be in 9 years if it is invested today in an account with an annual
interest rate of 11%?
3. How many years will it take for $136,000 to grow to be $468,000 if it is invested in an
account with an annual interest rate of 8%?
4. At what annual interest rate must $137,000 be invested so that it will grow to be $475,000 in
14 years?
5. If you wish to accumulate $197,000 in 5 years, how much must you deposit today in an
account that pays a quoted annual interest rate of 13% with semi-annual compounding of
interest?
6. What will $153,000 grow to be in 13 years if it is invested today in an account with a quoted
annual interest rate of 10% with monthly compounding of interest?
7. How many years will it take for $197,000 to grow to be $554,000 if it is invested in an
account with aquoted annual interest rate of 8% with monthly compounding of interest?
8. At what quoted annual interest rate must $134,000 be invested so that it will grow to be
$459,000 in 15 years if interest is compounded weekly?9. You are offered an investment with a
quoted annual interest rate of 13% with quarterly compounding of interest. What is your
effective annual interest rate?
10. You are offered an annuity that will pay $24,000 per year for 11 years (the first payment will
occur one year from today). If you feel that the appropriate discount rate is 13%, what is the
annuity worth to you today?
11. If you deposit $16,000 per year for 12 years (each deposit is made at the end of each year) in
an account that pays an annual interest rate of 14%, what will your account be worth at the end
of 12 years?
12. You plan to borrow $389,000 now and repay it in 25 equal annual installments (payments
will be made at the end of each year). If the annual interest rate is 14%, how much will your
annual payments be?
13. You are told that if you invest $11,000 per year for 23 years (all payments made at the end of
each year) you will have accumulated $366,000 at the end of the period. What annual rate of
return is the investment offering?
14. You are offered an annuity that will pay $17,000 per year for 7 years (the first payment will
be made today). If you feel that the appropriate discount rate is 11%, what is the annuity worth to
you today?
15. If you deposit $15,000 per year for 9 years (each deposit is made at the beginning of each
year) in an account that pays an annual interest rate of 8%, what will your account be worth at
the end of 9 years?
16. You plan to accumulate $450,000 over a period of 12 years by making equal annual deposits
in an account that pays an annual interest rate of 9% (assume all payments will occur at the
beginning of each year). What amount must you deposit each year to reach your goal?
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17. You are told that if you invest $11,100 per year for 19 years (all payments made at the
beginning of each year) you will have accumulated $375,000 at the end of the period. What
annual rate of return is the investment offering?
18. You plan to buy a car that has a total "drive-out" cost of $25,700. You will make a down
payment of $3,598. The remainder of the car’s cost will be financed over a period of 5 years.
You will repay the loan by making equal monthly payments. Your quoted annual interest rate is
8% with monthly compounding of interest. (The first payment will be due one month after the
purchase date.) What will your monthly payment be?
19. You are considering leasing a car. You notice an ad that says you can lease the car you want
for $477.00 per month. The lease term is 60 months with the first payment due at inception of the
lease. You must also make an additional down payment of $2,370. The ad also says that the
residual value of the vehicle is $20,430. After much research, you have concluded that you could
buy the car for a total "driveout" price of $33,800. What is the quoted annual interest rate you
will pay with the lease?
20. You are valuing an investment that will pay you $12,000 the first year, $14,000 the second
year, $17,000 the third year, $19,000 the fourth year, $23,000 the fifth year, and $29,000 the
sixth year (all payments are at the end of each year). What it the value of the investment to you
now is the appropriate annual discount rate is 11.00%?
21. You are valuing an investment that will pay you $27,000 per year for the first ten years,
$35,000 per year for the next ten years, and $48,000 per year the following ten years (all
payments are at the end of each year). If the appropriate annual discount rate is 9.00%, what is
the value of the investment to you today?
22. John and Peggy recently bought a house. They financed the house with a $125,000, 30-year
mortgage with a nominal interest rate of 7 percent. Mortgage payments are made at the end of
each month. What total dollar amount of their mortgage payments during the first three years
will go towards repayment of principal?
23. You are valuing an investment that will pay you $26,000 per year for the first 9 years,
$34,000 per year for the next 11 years, and $47,000 per year the following 14 years (all
payments are at the end of each year). Another similar risk investment alternative is an account
with a quoted annual interest rate of 9.00% with monthly compounding of interest. What is the
value in today's dollars of the set of cash flows you have been offered?
24. You have just won the Georgia Lottery with a jackpot of $40,000,000. Your winnings will be
paid to you in 26 equal annual installments with the first payment made immediately. If you feel
the appropriate annual discount rate is 8%, what is the present value of the stream of payments
you will receive?
25. You have just won the Georgia Lottery with a jackpot of $11,000,000. Your winnings will be
paid to you in 26 equal annual installments with the first payment made immediately. If you had
the money now, you could invest it in an account with a quoted annual interest rate of 9% with
monthly compounding of interest. What is the present value of the stream of payments you will
receive?
