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Time Value of Money Extra Problem Set 1 1. You are planning to retire in twenty years. You'll live ten years after retirement. You want to be able to draw out of your savings at the rate of $10,000 per year. How much would you have to pay in equal annual deposits until retirement to meet your objectives? Assume interest remains at 9%. [$1254] 2. You can deposit $4000 per year into an account that pays 12% interest. If you deposit such amounts for 15 years and start drawing money out of the account in equal annual installments, how much could you draw out each year for 20 years? [$19964.12] 3. What is the value of a $100 perpetuity if interest is 7%? [$1428.57] 4. You deposit $13,000 at the beginning of every year*…show more content…*

How much would you have to set aside each year if you could put money away starting now? 14. If you put $5000 in the stock market, how many years would it take you to triple your money if the market is making 12% a year? 15. If the effective annual interest rate is 8.5% per year, what is the nominal annual interest rate under monthly compounding? 16. If you put $10 away at the end of each month for the next 40 years at a 12% simple annual interest rate, how much money would you end up with? What if you started at the beginning of each month? 17. If you borrow $150,000 for a house at 8% simple annual interest rate for 15 years, what is your monthly payment? 18. Referring to question 17, how much interest did you pay over the 15 years? 19. What is the value of a $10,000,000 lottery ticket paid out over 20 years if interest rates are at 6%, the average tax rate is 35%, and the odds of winning are 1/7,000,000? 20. How long would it take to accumulate $50,000 if you started putting $5 in the bank every day starting at the end of today at simple annual interest rate of 7.3%? 21. How long would it take to accumulate $50,000 if you started putting $5 in the bank every month starting now at a simple annual interest rate of 7.3%? What if you started at the end of each month? Answers: 1. 3,558 2. 5,131 3. 952 4. 14.87 5.

How much would you have to set aside each year if you could put money away starting now? 14. If you put $5000 in the stock market, how many years would it take you to triple your money if the market is making 12% a year? 15. If the effective annual interest rate is 8.5% per year, what is the nominal annual interest rate under monthly compounding? 16. If you put $10 away at the end of each month for the next 40 years at a 12% simple annual interest rate, how much money would you end up with? What if you started at the beginning of each month? 17. If you borrow $150,000 for a house at 8% simple annual interest rate for 15 years, what is your monthly payment? 18. Referring to question 17, how much interest did you pay over the 15 years? 19. What is the value of a $10,000,000 lottery ticket paid out over 20 years if interest rates are at 6%, the average tax rate is 35%, and the odds of winning are 1/7,000,000? 20. How long would it take to accumulate $50,000 if you started putting $5 in the bank every day starting at the end of today at simple annual interest rate of 7.3%? 21. How long would it take to accumulate $50,000 if you started putting $5 in the bank every month starting now at a simple annual interest rate of 7.3%? What if you started at the end of each month? Answers: 1. 3,558 2. 5,131 3. 952 4. 14.87 5.

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