TIME VALUE OF MONEY EXERCISE 1

Problem 4 (4) Yun Ma considers buying a house. Currently, he rents a place for $850 a month. The current monthly interest rate on mortgages is 0.5%. His planning period is 20 years. If he doesnt want to increase his housing costs, what amount of mortgage is available for his purchase? (Neglect any tax effects here).

Problem 9 (4) Suppose you have a 1-year old son and you want to provide $75,000 in 17 years towards his college education. You currently have $5,000 to invest. What interest rate must you earn to have the $75,000 when you need it?

Problem 14 (4) You plan to save $4,000 every year for 20 years and then retire. Given a 10% rate of interest, what will be the FV of your retirement account?

Question 19 (4) Ali wishes to accumulate RM8,000 by the end of five years by making equal annual end-of-year deposits over the next five years. If Ali can earn 7 percent on his investments, how much must he deposit at the end of each year to meet this goal?

Question 24 (4) Find the answers to these questions:

a. What is the present value of a 3-year annuity of $100 if the discount rate is 10 percent? If this was annuity due, what would be the PV?

b. What is the present value of the ordinary annuity if you have to wait 2 years for the payment stream to start instead of 1 year?

c. If you invest $750 every six months at a 12% annual rate compounded semiannually, how much would you accumulate at the end of 10 years?