Chapter 09 – The Time Value of Money
63. Babe Ruth Jr. has agreed to play for the Cleveland Indians for $3 million per year for the
next 10 years. What table would you use to calculate the value of this contract in today’s
dollars?
64. Football player Walter Johnson signs a contract calling for payments of $250,000 per
year, to begin 10 years from now. To find the present value of this contract, which table or
tables should you use?
Chapter 09 – The Time Value of Money
65. Mike Carlson will receive $12,000 a year from the end of the third year to the end of the
12thyear (10 payments). The discount rate is 10%. The present value today of this deferred
annuity is:
66. The shorter the length of time between a present value and its corresponding future value,
67. A dollar today is worth more than a dollar to be received in the future because
Chapter 09 – The Time Value of Money
68. The higher the rate used in determining the future value of a $1 annuity,
69. Mr. Darden is selling his house for $200,000. He bought it for $164,000 ten years ago.
What is the annual return on his investment?
70. Increasing the number of periods will increase all of the following except
Chapter 09 – The Time Value of Money
71. Joe Nautilus has $210,000 and wants to retire. What return must his money earn so he
may receive annual benefits of $30,000 for the next 10 years.
72. You will deposit $2,000 today. It will grow for 6 years at 10% interest compounded
semiannually. You will then withdraw the funds annually over the next 4 years. The annual
interest rate is 8%. Your annual withdrawal will be:
Chapter 09 – The Time Value of Money
73. Carol Thomas will pay out $6,000 at the end of the year 2, $8,000 at the end of year 3, and
receive $10,000 at the end of year 4. With an interest rate of 13 percent, what is the net value
of the payments vs. receipts in today’s dollars?
74. John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he promised to
repay the loan in 15 equal annual payments. How much are the annual payments?
Chapter 09 – The Time Value of Money
75. John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he promised to
repay the loan in 15 equal annual payments. What is the principal outstanding after the first
loan payment?
76. A home buyer signed a 20-year, 8% mortgage for $72,500. Given the following
information, how much should the annual loan payments be?
Present value of $1 PVIF= .215
Future value of $1 FVIF= 4.661
Present value of annuity PVIFA= 9.818
Future value of annuity FVIFA= 45.762
Chapter 09 – The Time Value of Money
77. A retirement plan guarantees to pay to you or your estate a fixed amount for 20 years. At
the time of retirement you will have $73,425 to your credit in the plan. The plan anticipates
earning 9% interest. Given the following information, how much will your annual benefits
be?
Present value of $1 PVIF= .178
Future value of $1 FVIF= 5.604
Present value of annuity PVIFA= 9.129
Future value of annuity FVIFA= 51.16
78. After 10 years, 100 shares of stock originally purchased for $500 was sold for $900. What
was the yield on the investment? Choose the closest answer.
Chapter 09 – The Time Value of Money
79. Mr. Smith has just invested $10,000 for his son (age 7). The money will be used for his
son’s education 15 years from now. He calculates that he will need $100,000 for his son’s
education by the time the boy goes to school. What rate of return will Dr. Stein need to
achieve this goal?
80. The future value of a $500 investment today at 10 percent annual interest compounded
semiannually for 5 years is
Chapter 09 – The Time Value of Money
81. Dan would like to save $1,500,000 by the time he retires in 25 years and believes he can
earn an annual return of 8%. How much does he need to invest in each of the following years
to achieve his goal?
82. Sydney saved $10,000 during her first year of work after college and plans to invest it for
her retirement in 40 years. How much will she have available for retirement if she can make
8% on her investment?
Chapter 09 – The Time Value of Money
83. Luke believes that he can invest $5,000 per year for his retirement in 30 years. How much
will he have available for retirement if he can earn 8% on his investment?
84. Ian would like to save $2,000,000 by the time he retires in 40 years. If he believes that he
can achieve a 7% rate of return, how much does he need to deposit each year to achieve his
goal?
Chapter 09 – The Time Value of Money
85. Jeff believes he will need $60,000 annual income during retirement. If he can achieve a
6% return during retirement and believes he will live 20 years after retirement, how much
does he need to save by the time he retires?
86. If Allison has saved $1,000,000 upon retirement, how much can she live on each year if
she can earn 6% per year and will end with $0 when she expects to die 25 years after
retirement?