Time Value of Money
Please complete the attached worksheet by providing a response to all of the questions.
Please answer the following time value of money questions below. Charting out each of the problem elements (ex. N = 10, PV = 500, etc.) will not only help you in answering the questions but will also assist me in following your calculations.
- What is the present value of a 10-year annuity of $400 per year if the annual interest rate is 3.5%?
- What will an investment of $2,500 today be worth in 15 years at an interest rate of 2.5% compounded semi-annually?
- How many years will it take for your investment of $1,000 to become $10,000 at an annual interest rate of 3.9%?
- What annual interest rate would you need in order for your investment of $2,200 to grow to $17,500 in 12 years?
- You are offered an annuity that will pay you $200 per year for each of the next 7 years. You are trying to decide between this investment opportunity and another opportunity where you could earn 5% on your money with an equal amount of risk. What is the most you should pay for this annuity?
6. What is the present value of a perpetuity bond that will pay you $70 of interest per year at an interest rate of 6%?
7. What is the present value of a 7-year annuity of $175 plus an additional lump sum of $1,000 at the end of year 7 if the interest rate is 5.5%
8. What is the cost of an investment that will produce cash flows of $250 at the end of the next 5 years, then an extra lump sum payment of $500 at the end of the 5th year at an interest rate of 5%?
9. How much would you be willing to pay today for an investment that pays the following cash flows at the end of each of the next 4 years if your required rate of return is 9% per year? APA FORMAT
| Period Cash Flow | |
| 0 | $0 |
| 1 | $100 |
| 2 | $200 |
| 3 | $300 |
| 4 | $400 |