Question

Time Value of Money Name: Show all your work, complete answers in your handwriting, and submit the homework to Moodle. I. Time Value of Money Questions 1. Sue has a $5 million portfolio and invests 5 percent of it in a money market fund projected to eam 3 percent annually. Estimate the value of this portion of his portfolio after seven years. Steps (9 points): Answer (1 point): 2. How much would $1,000,000 due in 13 years be worth today if the discount rate interest rate time value of money) were 5.25%? Steps (9 points): Answer (1 point): 3. Your parents will retire in 25 years. They currently have $850,000 saved, and they think they will need $7,000,000 at retirement. What annual interest rate must they eam to reach their goal, assuming they don't save any additional funds? Steps (9 points): Answer (1 point): 1 Page

Answer 1

Ans. Future value= Present value(1+I)^t

Where, I=interest rate and t=time

1. Current investment=50M*5%= 250000

Future value= 250000(1+0.03)⁷

Future value=$307468.46

2. Future value= 1000000, time= 13years, I=5.25%

Present value= 1000000/(1.0525)¹³

Present value=$514165.25

3. Present value=850000

Future value=7000000

Time= 25yrs

7000000=850000(1+I)^t

I=8.80%