Time Value of Money Functions.

SOLVE THIS PROBLEMS

1. You estimate a college education will be $300,000 when your child enters college in 18 years. You presently have $70,000 to invest. What annual rate of interest must you earn on your investment to cover the cost of your childs college education?

2. You expect to receive $10,000 in two years. You plan on investing it at 9 percent until you have $75,000. How long will you have to wait from now?

3. Jillian invested $2,000 six years ago at 4.5 percent interest. She spends all of her interest earnings immediately, so she only receives interest on her initial $2,000 investment. How much interest is she earning each year?

4. You have just made your first $5,000 contribution to your retirement account. Assume you earn a return of 10 percent per year and make no additional contributions.

What will your account be worth when you retire in 45 years?

What if you wait 10 years before contributing?

After calculating parts a and b, what is the lesson learned?

5. You are committed to buying a $225,000 backhoe for your new construction business. If you believe your mutual fund can achieve a 12% annual rate of return and you want to buy the car in 9 years for your 30th birthday, how much must you invest today?