Use TVM techniques to problems involving loan payments and asset values

Computes present and future values

1.

a.

You deposit $100 into an account earning a 10% annual rate of interest. How much money will you have in the account at the end of five years?

b.

You have just won the lottery and have a choice of receiving a lump sum of $1,000,000 or an annuity of $100,000 per year for 15 years. If the appropriate discount rate is 8%, which alternative would you choose? (10 points) Explain. (5 points)

c.

What happens to the future value of a sum of money deposited for N years as the rate of return k increases? (15 points) What happens to the present value of a sum of money to be received at the end of N years as k increases?