Transcript TVM Practice Problems
TVM Practice Problems
Principles of Financial Management FIN 335
Mortgage Problem
• • • • • The condominium at the beach that you want to buy costs $249,500. You plan to make a cash down payment of 20 percent and finance the balance over 10 years at 6.75 percent. What will be the amount of your monthly mortgage payment?
N = ____ I/Y = ______ P/Y = _____ PV = ____ PMT = ________ A. $2,809.10
C. $2,291.89
FV = ________ B. $4,145.68
D. $3,287.46
Simple Interest [FV]
• • • • • You want to invest an amount of money today and receive back twice that amount in the future. You expect to earn 6% simple interest. Approximately how long must you wait for your investment to double in value?
N = ___ I/Y = _____ P/Y = _____ PV = ______ PMT= ______ FV = ______ A. 8 years B. 12 years C. 9 years D. 10 years
Simple Interest [FV]
• • • • • Today, you deposit $10,750 in a bank account that pays 3 percent simple interest. How much interest will you earn over the next 7 years?
N = ____ I/Y = ____ P/Y = ____ PV = ______ PMT = ________ FV = ________ A. $1,935.00
C. $2,086.06
B. $2,471.14
D. $3,541.46
Present Value [PVA]
• • • • • Dustin is considering an investment that will pay $3,000 a year for 10 years, starting 1 year from today. How much should Dustin pay for this investment if he wishes to earn a 9 percent rate of return?
N = ______ I/Y = ______ PV = ______ FV = ________ A. $19,252.97
P/Y = _____ B. $17,985.74
C. $20,415.57
D. $18,792.57
IRA Accumulation
• • A few years after graduating from UNCW, you decide to take advantage of the 401(k) retirement plan offered by your employer. Assume that you are 25 years old and expect to contribute to this plan every month for the next 35 years. You estimate that your average life-time salary at $7,000 per month and that you will be able to contribute 5% of this amount each month (.05 times $7,000 = $350.00 per month). The retirement plan is managed by Vanguard and allows you to pick from a variety of funds. You decide to invest your monthly contribution in the [conservative] Index 500 Fund. The fund’s prospectus notes that the Index 500 fund has averaged 10.4% return per year (compounded monthly) . If the fund averages a 10.4% return for the next 15 years how much money will you accumulate (FV?) in the 401(k) in the next 15 years?
N = ______ I/Y = ______ P/Y = _____ PV = ______ FV = ________ • • A. $142,837.66
C. $150,511.18
B. $171,855.17
D. $195,971.91
IRA Annuitization
• • • You have accumulated $675,000 in your IRA. You decide to invest it in a government bond fund paying 2.75% per annum. How much will you monthly payment be if you annuitize for 25 years?
N = ______ I/Y = ______ P/Y = _____ PV = __________ PMT = _________ FV = ________ • • A. $3,052.01
B. $4,052.89
C. $3,113.85
D. $4,878.95
Bond Valuation
• • • Drakon, Inc. bonds have a face value of $1,000. The bonds pay a 5 percent coupon, pay interest semiannually, and mature in 12 years. What is the current price of these bonds if the yield to maturity (YTM) is 6.5 percent?
N = ______ I/Y = ______ P/Y = _____ PV = __________ PMT = _________ FV = ________ • • A. $876.34
C. $1,014.62
B. $705.14
D. $1,020.15