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Chapter 09 - The Time Value of Money
87. Kathy has $50,000 to invest today and would like to determine whether it is realistic for
her to achieve her goal of buying a home for $150,000 in 10 years with this investment. What
return must she achieve in order to buy her home in 10 years?
88. If Gerry makes a deposit of $1,500 at the end of each quarter for 5 years, how much will
he have at the end of the 5 years assuming a 12% annual return and quarterly compounding?
Chapter 09 - The Time Value of Money
89. Sara would like to evaluate the performance of her portfolio over the past 10 years. What
compound annual rate of return has she achieved is she invested $12,000 10 years ago and
now has $25,000?
Chapter 09 - The Time Value of Money
90. Match the following with the items below:?
The payment of an equal stream of cash into a fund
which increases in size (depending on the interest rate
3. semi-annual
The discounted value of a future sum or annuity as of
4. future value of an
A series of consecutive payments or receipts of an equal
The percentage rate at which future sums or annuities
The future value of a single amount or annuity when
compounded at a given interest rate for a specified period
7. interest factor
It is based on the number of periods (n) and the interest
rate (i) and whether or not there is more than one cash
The interest rate that equates a future value of an
Chapter 09 - The Time Value of Money
91. You have an opportunity to buy a $1,000 bond which matures in 10 years. The bond pays
$30 every six months. The current market interest rate is 8%. What is the most you would be
willing to pay for this bond?
Chapter 09 - The Time Value of Money
92. In January, 2000, Harold Black bought 100 shares of Country Homes for $37.50 per
share. He sold them in January, 2010 for a total of $9,715.02. Calculate Harold's annual rate
of return.
93. Samuel Johnson invested in gold U.S. coins ten years ago, paying $216.53 for one-ounce
gold "double eagle" coins. He could sell these coins for $734 today. What was his annual rate
of return for this investment?
Chapter 09 - The Time Value of Money
94. Gary Kiraly wants to buy a new Italian sports car in three years. The vehicle is expected to
cost $80,000 at that time. If Gary should be so lucky as to find an investment yielding 12%
over that three-year period, how much would he have to invest now in order to accumulate
$80,000 at the end of the three years?
95. Mr. Sullivan is borrowing $2 million to expand his business. The loan will be for ten years
at 12% and will be repaid in equal quarterly installments. What will the quarterly payments
be?
Chapter 09 - The Time Value of Money
96. Marcia Stubern is planning for her golden years. She will retire in 20 years, at which time
she plans to begin withdrawing $60,000 annually. She is expected to live for 20 years
following her retirement. Her financial advisor thinks she can earn 9% annually. How much
does she need to invest each year to prepare for her financial needs after her retirement?
Chapter 09 - The Time Value of Money
97. Sara Shouppe has invested $100,000 in an account at her local bank. The bank will pay
her a constant amount each year for 6 years, starting one year from today, and the account's
balance will be 0 at the end of the sixth year. If the bank has promised Ms. Shouppe a 10%
return, how much will they have to pay him each year?
Chapter 09 - The Time Value of Money
98. The Swell Computer Company has developed a new line of desktop computers. It is
estimated that the cash returns generated by the new product line will be $800,000 per year
for the next five years, and then $500,000 per year for 3 years after that (the cash returns
occur at the end of each year). At a 9% interest rate, what is the present value of these cash
returns?
99. Kimberly Ford invested $10,000 10 years ago at 16 percent, compounded quarterly. How
much has she accumulated?
Chapter 09 - The Time Value of Money
100. Sponge Bob will receive a payment of $5,000 per year for 7 years beginning three years
from today. At a discount rate of 9 percent, what is the present value of this deferred annuity?
