Question

Time Value of Money Exercise: Question 1: Assume you deposit $700 every three months at ercent annual rate, compounded $700 every three months at a 6 percent am much will you have at the end of 20 years? Question 2: You borrow a five-year $13.000 loan with monthly percentage rate (APR) on the loan? 3,000 loan with monthly payments of $250. What is the annual Question 3: How much would you have to invest today to receive per year? have to invest today to receive $50,000 in 10 years at 9.5 percent Question 4: Ms. Nelson will receive $12.000 a year for the next 20 years from 00 a year for the next 20 years from her retirement fund. If a 6 percent interest rate is applied what is the current value of her retirement rund: Question 5: Assume you deposit $2.000 every six months at 10 percent compounded semi-annually. How much will you have at the end of 10 years? Question 6: If you need $40,000 for your son's education in 10 years, how much must you deposit at the beginning of each year in the bank earning 6 percent in order to have the college money ready? Question 7: If you have $30,000 in a savings account earning 10 percent, how large an annuity can you draw out each year if you want nothing left at the end of 8 years? Question 8: You borrow $6,000 at a 10 percent annual rate to be repaid in 3 equal payments at the end of each of the next 3 years. How large is the total interest payment over the three years? Question 9: I invested $600.000 in a cattle ranch and I sold that ranch for $1.800.000 ten years later, What was my annual percentage rate return? Question 10: How much can I borrow for the purchase of my first home if I can afford to make hly payments of $1,000, and the annual interest rate is 4.8 percent on a 30-year mortgage?

I need help on question 3.

Answer 1

3.

Present value can be computed using future value as:

PV = FV/(1+r) ⁿ

FV = Future value of deposit = $ 50,000

r = Periodic Rate = 9.5 % or 0.095 p.a.

n = Number of periods = 10

Substituting all the values on above formula, we get PV as:

PV = $ 50,000/ (1+0.095)¹⁰

      = $ 50,000/ (1.095)¹⁰

      = $ 50,000/ 2.47822761345865

      = $ 20,175.7093369722 or $ 20,175.71

We need to invest $ 20,175.71 today to get $ 50,000 after 10 years.