Time Value of Money I - Worksheet Identify the table that should be used for each of the following situations in the space provided, then show the calculations to solve the problem below. FV - Future Value of 1 PV - Present Value of 1 FVA - Future Value of an Annuity PVA - Present Value of an Annuity

_________ 1. Tom bought a zero-coupon bond with an 8% yield. (A zero-coupon bond does not pay interest, but the value of the bond grows throughout its life.) When it matures in 20 years, he will receive $200,000. How much did Tom pay for the bond?

_________ 2. You have determined that getting your degree will result in you earning an additional $5,000 per year. If you work 23 more years and save those additional earnings at 3% per year, what will be the additional value of having the degree?

_________ 3. The IRS audited Eric's return from three years ago, and determined that he owed $10,000 at that time, but the IRS also charges 7% interest per year on back taxes. How much does Eric owe the IRS?

_________ 4. Will bought his first car 24 years ago for $6,000. He wants to buy a comparable car for his son. If inflation has run about 3% a year since then, how much can Will expect to pay for his son's car?

__________ 5. An investment firm has determined that the market price of a 5-year $100,000 bond yielding 6% is $104,212. This is based on the $100,000 face amount of the bond that the investor will receive when the bond matures and the $7,000 annual interest the bond will pay until that time. (Hint: There are two tables.)

_________ 6. Matt is receiving an annuity of $8,500 a year from his dad's estate. There are 12 years of payments left. ABC Company has offered him $60,000 now in exchange for the future payments. His investment account is returning 7%. Should he take the offer?

Time Value of Money I - Worksheet continued

Solve the following: You want to be a millionaire in 25 years. If you can earn 10% on your investments, how much do you have to save each year to hit that $1,000,000 mark?

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Amy is 65 and has $350,000 in her retirement account. An actuary has determined that if her investments earn 7%, she can withdraw $32,300 annually. How many more years does the actuary expect Amy to live?

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Karla sued her landlord 5 years ago for damage to her things from a water leak and won a judgement against him. The original award was $15,500, but she finally received $18,858, which included interest. What is the rate of interest she received?

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Use EXCEL to determine the following: Ty bought a new car for $25,000. He put $2,000 down and financed the rest with the dealer who had a special offer of 2% interest for 60 monthly payments. How much will Ty pay each month? EXCEL function used: Inputs:

Result:

Twins Taylor and Tanner both received $1,000 from their grandmother for their birthday. She told them they had to save it for 5 years. Taylor found an account paying 4.5% with monthly compounding. Tanner elected an account paying 5% with annual compounding. Who will have more at the end of the five years? EXCEL template used: Inputs:

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Piper has $300,000 for her retirement. She is considering investing in a 20-year, 7% annuity and is trying to determine whether she should take the payments quarterly or monthly. Under which method would she get the most money each year? EXCEL function: Input:

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Twins Kate and Allie will be going to college in 15 years. Their parents have decided that Dad will start a savings fund for Kate. He will deposit $2,000 into an account the first of each year. That account earns 7% and interest is compounded annually. Their mother will also deposit $2,000 into an account for Allie, but she is going to make those deposits at the end of each quarter and the account pays 7.5% compounded quarterly. Who will have more in her college fund? EXCEL function: Input:

Results: