Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd
Upload
36 views

Time Value of Money (Sample Questions) (1) 2

1. Your uncle needs to invest SAR 100,000 today to cover four annual tuition payments of SAR 25,000 each over the next four years with a 7% annual interest rate. The account balance after the first payment will be SAR 92,500 and after the last payment the balance will be SAR 0. 2. For Miss Sadia to have SAR 185,000 in 20 years to purchase a retirement home that is expected to increase in price by 6% annually, she needs to make annual deposits of SAR 6,500 at a 10% interest rate. 3. The annual rate of return on the investment that will pay SAR 2000 after 3 years is 15%. Miss Keya should choose the 8% annual

Uploaded by

mintakhts
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
36 views

Time Value of Money (Sample Questions) (1) 2

1. Your uncle needs to invest SAR 100,000 today to cover four annual tuition payments of SAR 25,000 each over the next four years with a 7% annual interest rate. The account balance after the first payment will be SAR 92,500 and after the last payment the balance will be SAR 0. 2. For Miss Sadia to have SAR 185,000 in 20 years to purchase a retirement home that is expected to increase in price by 6% annually, she needs to make annual deposits of SAR 6,500 at a 10% interest rate. 3. The annual rate of return on the investment that will pay SAR 2000 after 3 years is 15%. Miss Keya should choose the 8% annual

Uploaded by

mintakhts
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

Time Value of Money

1. Your rich uncle has offered to put you through college. Your annual tuition payments
will begin one year from today, and there will be a total of four payments. Each payment
is SAR 25000. If your uncle can invest funds into an account paying 7 %interest
compounded annually, how much does he need today to cover the four payments? How
much will be in the account immediately after the first tuition payment? How much will
be in the account immediately after the last payment?

2. A retirement home at AslamReal Estate (Bhd) now cost SAR 185,000. Inflation is
expected to cause this price to increase at 6 % per year over the 20 years before Miss
Sadia retires. How large an equal annual end of year deposit must be made each year into
an account paying an annual interest rate of 10% for Sadia to have the cash needed to
purchase a home at retirement?

3. Miss Keya has SAR 1500 to invest. Her investment counselor suggests an investment that
pays no stated interest but will return SAR 2000 at the end of 3 years. What annual rate
of return she can earn with this investment? If she got another offer that pays 8% annual
interest, which option she should choose? As a finance student, give your decision to
Keya.

4. Sam was injured in an accident, and the insurance company has offered him the choice of
$49,000 per year for 15 years, with the first payment being made today, or a lump sum. If
a fair return is 7.5%, how large must the lump sum leave him as well off financially as
with the annuity?

5. Your uncle has $1,135,000 and wants to retire. He expects to live for another 25 years
and to earn 7.5% on his invested funds. How much could he withdraw at the end of each
of the next 25 years and end with zero in the account?

6. Your child will be ready to go to college in 10 years, so you calculate that you will need
$20, 000 to cover educational expenses. If you start an installment plan at 4.5% annual
interest, how much should you deposit at the end of each month in order to achieve your
goal?

7. Your sister turned 35 today and is planning to save $20,000 per year for retirement, with
the first deposit to be made one year from today. She will invest in a unit trust fund that is
expected to provide a return of 7.5% per year. She plans to retire 30 years from today
when she turns 65, and she expects to live for 25 years after retirement, to age 90. Under
these assumptions, how much can she spend each year after she retires? Her first
withdrawal will be made at the end of her first retirement year.
8. Suppose an investor wants to save an amount of 7,000 by depositing regular annuity
payments. The payments are to be made for 14 periods at an interest rate of 3% per
period. However, if the interest rate is 6% per year, years are 15, and you will earn after
15 years 90,000, then how would you calculate if it is monthly payment?

9. Sarah Wiggum would like to make a single investment and have $1.5 million at the time
of her retire-ment in 40 years. She has found a mutual fund that will earn 5 percent
annually. How much will Sarah have to invest today? What if Sarah is a finance major
and learns how to earn a 15 percent annual return? How soon could she then retire?

10. In September 1963, the first issue of the comic book X-MEN was issued. The original
price for the issue was 12 cents. By September 2016, 53 years later, given the condition
it’s in, the value of this comic book had risen to $14,500. What annual rate of interest
would you have earned if you had bought the comic in 1963 and sold it in 2016?

11. Bob Terwilliger received $1,800 for his services as financial consultant to the mayor’s
office of his hometown of Springfield. Bob says that his consulting work was his civic
duty and that he should not receive any compensation. So he has invested his paycheck
into an account paying 3.67 percent annual interest and has left the account in his will to
the city of Springfield on the condition that the city not collect any money from the
account for 120 years. How much money will the city receive from Bob’s generosity in
120 years?

You might also like