SimpleTime Value of Money

For each problem determine the time value of money factor that should be used to answer the problem. Solve the problem using values obtained from factor tables.

1. You are 20 years old and just got married. Your spouse and you agree that you want to retire at age 60 with $1,000,000. How much do you have to put away each year if you earn 10% on your investments.

2. At age 5 you were left $10,000 from the fortune of a favorite aunt. Your parents put the money in a trust fund earning 10% interest. You are now 25 years old and may draw from the trust fund. How much do you have?

3. You finally have a job after 4 years of college. To escape the high rent of the Austin area you buy a house for $100,000. You finance the full amount with a 30 year mortgage. The interest rate is 9% a year, and your payments are monthly. What are the total of all payments if you make all payments as scheduled.

4. You can afford $300 a month to purchase a car. If the interest rate is 6% a year and the loan is for 60 months, how much can you finance?


5. You win the lottery and the government promises to pay you $1,000,000 in ten years. Your minimum acceptable rate of return on investments is 10%. What is the prize worth to you now?

6. You are a freshman in college and you just paid $1000 for tuition and fees for the University. Assuming the cost goes up by $100 per semester for the remaining 7 semesters of your education, how much must you have in the bank right now to cover the remaining charges? Assume your investments earn 3% every six months.

7. You are a parent. Your daughter starts college in 18 years. If you put away $100 each month for 18 years, how much will you have when she is ready to begin college? The CD's you invest in return 6% per year compounded monthly.

8. If $1000 is invested now, $1500 two years from now, and $800 four years from now at an interest rate of 8% compounded annually, what will be the total amount in 10 years?

9. What is the amount of 10 equal annual deposits that can provide five annual withdrawals, when a first withdrawal of $1,000 is made at the end of year 11, and subsequent withdrawals increase at the rate of 6% per year over the previous year's if the interest rate is 8%, compounded annually?