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Practical Problem-Solving Exercises and Solutions

The document presents a series of practical problem-solving exercises related to finance, including calculations for future value, present value, loan payments, and retirement savings. It contains five main problems and additional exercises that cover various financial scenarios and concepts. Each problem requires applying financial formulas to determine values based on given parameters such as interest rates and time periods.

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7 views1 page

Practical Problem-Solving Exercises and Solutions

The document presents a series of practical problem-solving exercises related to finance, including calculations for future value, present value, loan payments, and retirement savings. It contains five main problems and additional exercises that cover various financial scenarios and concepts. Each problem requires applying financial formulas to determine values based on given parameters such as interest rates and time periods.

Uploaded by

bektasyezhep
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Practical Problem-Solving Exercises and Solutions

📌 Problem 1: Future Value of a Lump Sum


You invest $8,000 today in a savings account that pays 6% annual interest. How much will your investment be
worth in 12 years?

📌 Problem 2: Present Value of an Annuity


You are expecting to receive $5,000 per year for the next 15 years from an investment. If the discount rate is
8%, what is the present value of these payments?

📌 Problem 3: Loan Payment Calculation


You take a $25,000 loan at 7% annual interest, to be paid back over 5 years with equal yearly payments.
What is your annual payment?

📌 Problem 4: Saving for Retirement (Future Value of an Annuity)


You want to have $500,000 in your retirement account in 30 years. If you can earn 5% annual interest, how
much must you save every year to reach your goal?

📌 Problem 5: Comparing Present and Future Values


You have two options:

●​ Receive $50,000 today


●​ Receive $75,000 in 10 years (discount rate = 6%)

Additional exercises:
1.​ Calculate the future value of $5,000 invested at 6% annual interest for 10 years.
2.​ Determine the present value of $10,000 to be received in 5 years, assuming a discount rate of 7%.
3.​ Find the annual mortgage payment on a $250,000 loan at 5% interest for 20 years.
4.​ Calculate the effective annual rate (EAR) for an investment that offers a nominal rate of 8%
compounded quarterly.
5.​ A business plans to invest in a project that will generate $20,000 per year for 5 years. If the discount rate
is 6%, what is the present value of these cash flows?

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