Time Value of Money Essay

708 Words Jan 29th, 2012 3 Pages
Time Value of Money Project
Show all your work!

Name _________________

1. If Mrs. Beach wanted to invest a lump sum of money today to have $100,000 when she retired at 65 (she is 40 years old today) how much of a deposit would she have to make if the interest rate on the C.D. was 5%?

a. What would Mrs. Beach have to deposit if she were to use high quality corporate bonds an earned an average rate of return of 7%.

b. What would Mrs. Beach have to deposit if she were to use common stock and earned an average rate of return of 11%.

c. What type of a problem is this? ___________

2. If you had a payment that was due you in 5 years for $50,000 and you could earn a 5% rate of return, how much
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a. What would be the principal and interest payment on the first payment?

b. What would be the principal and interest payment on the twelfth payment?

c. What type of a problem is this? ___________

6. You want to purchase a truck for $25,000 and you have $3,450 to put down. How much will your payments be if you financed the truck for 60 months at 6%?

a. How much would the payment be if rate of interest is 5% and you only financed the truck for 48 months?

b. Assuming that you would only finance the truck for 4 years, how much would you need to put down to get your payment to $450.00?

c. What type of a problem is this? ___________

7. You have $350.00 per month to spend on a car payment. If your credit union charged 7.5% interest on a used car, how much car can you purchase if you will only finance for 4 years? __________

8. If you want to purchase a home. You have $15,000 to put down. All you can afford is $1,500.00 per month and you do not want to finance for more than 15 years @ 6% interest, (your taxes will be $85.00 per month and insurance $200.00 a month), what is the amount you can pay for your home? (Show all your work)

9. You want to purchase a business with the following cash flows. How much would you pay for this business today assuming you needed a 14% return to make this deal?

a. Year 2011 $150,000 b. Year 2012 $175,000 c.…

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