Time Value of Money Problems
Directions: Please complete the following problems. You can use the formula approach or Microsoft
Excel. However, make sure to show all of your work. For instance, if you choose to write down your
answers on paper, write down the formula and the inputs you used. If you use Excel, make sure to write
down your inputs (PV= x FV = x PMT= x Rate= x, Nper =x). As an alternative, if you do the work in Excel,
you can just electronically submit the file/spreadsheet.
1) Martha currently has $60,000 to invest. She will invest this money in an account that pays 4% interest
compounded annually for 8 years. How much money will Martha have at the end of 8 years?
2) Tim currently has $60,000 to invest. He will invest this money in an account that pays 4% interest
compounded semiannually for 8 years. How much money will Tim have at the end of 8 years?
3) John wants to have $700,000 in 15 years. He opens an account today and will earn 6% interest,
compounded semi-annually. How much money must John invest today to reach his goal?
4) Julie is opening up a retirement account today. The account will pay 6 % interest compounded
annually. She plans to invest $6,000 per year for 25 years at the beginning of the year. How much will
she accumulate at the end of 25 years?
5) Michael has just won the lottery! He has an option of taking a lump sum of $17 million or can be paid
$900,000 per year for 30 years at the end of the year. The discount rate is 3%. Which option is better?
6) Marie invested $35,000 today in an account that pays 4% annual compound interest. She wants to
know how long it will take for her investment to grow to $70,000. She will not be depositing or
withdrawing any money over the investment time horizon. Find time period (nper).
7) Suzanne invests $20,000 in an account that pays 7% annual compound interest for 3 years. She wants
to know how much money she will have at the end of each year. Please draw a timeline and show how
much money Suzanne will have accumulated at the end of each calendar year (Years 1-3)
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