Reference no: EM1336820

Time Value of Money Problems  

Question 1. Joe, a Carlson School graduate you recently hired, needs $55,000 in 4 years to buy the car of his dreams. If his investments earn 6% interest per year, how much must he invest today?  

Question 2. Since Joe does not have enough cash today to meet his goal he decides he should to invest equal amounts over the next four years beginning at the end of this year. If the fair interest rate is 6% annually, how much will he need to invest each year? 

Question 3. (Difficult) How much would Joe need to invest annually if he invests an equal amount over the next four years beginning immediately?  

Question 4. The great, great grandparents of one of your classmates sold their factory to the government 104 years ago for $150,000. If these proceeds had been invested at 6%, how much would this legacy be worth today? Assume annual compounding.  

Question 5. An investment today of $3,300 is worth $10,000 in 8 years. At what rate has your investment been growing (annually) over the 8 years?  

Question 6. In her will, your aunt set up a trust that is required to pay you the sum of $5,000 a year forever with payments starting immediately. However, the news is better. She has specified that this $5,000 should grow at 5% per year. Given an interest rate of 12%, what is the PV of the inheritance?  

Question 7. After your grandmother retired, she purchased an annuity contract for $250,000 that will pay her $25,000 at the end of every year until she dies. The appropriate interest rate for this annuity is 8%. Calculate the number of years that your grandmother must live in order to get more value out of the annuity than what she paid for it.