Computing the Time Value of Money
Answer the following questions:
- Calculating the future value of property. Ben Collins plans to buy a house for $220,000. If that real estate is expected to increase in value by 3 percent each year, what will its approximate value be seven year from now?
- Using the Rule of 72. Using the rule of 72, approximate the following amounts:
- If the value of land in an area is increasing 6 percent a year, how long will it take for property values to double?
- If you earn 10 percent on your investments, how long will it take for your money to double?
- At an annual interest rate of 5 percent, how long will it take for your savings to double?
- Determining the inflation rate. In 2006, selected automobiles had an average cost of $16,000. The average cost of those same automobiles is now $28,000. What was the rate of increase for these automobiles between the two time periods?
- Computing the Time Value of Money. Using time value f money tables, calculate the following:
- The future value of $450 six years from now at 7 percent.
- The future value of $900 saved each year for 10 years at 8 percent.
- The amount a person would have to deposit today (present value) at a 6 percent interest rate to have $1,000 five years from now.
- The amount a person would have to deposit today to be able to take out $600 a year for 10 years from an account earning 8 percent.
- Calculating the Present Value of a Series. Pete Morton is planning to go to graduate school in a program of study that will take three years. Pete wants to have $15,000 available each year for various school and living expenses. If he earns 4 percent on his money, how much must be deposited at the start of his studies to be able to withdraw $15,000 a year for three years?
- Determining a Loan Payment Amount. If you borrow $8,000 with a 5 percent interest rate, to be repaid in five equal yearly payments, what would be the amount of each payment? (Note: Use the present value of an annuity table.)