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  • Time Value of Money

    • Formulas Page
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    • Initial Investment for a given Maturity Value Page
      2017-53-eco
      A bond has a maturity value of $ 20,000 at the end of 4 years. The interest is compounded at the rate of 5% per year. The initial investment to be made, rounded to the nearest integer, is $ ________
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    • Future Value with Quarterly Compounding - Example-1 Page
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      2001-2-21-eco
      An investment of $ 1000 is carrying an interest of 10% compounded quarterly. The value of the investment (in $) at the end of five years will be
      1. \(1000(1+0.1/4)^{20}\)
      2. \(1000(1+0.1)^{20}\)
      3. \(1000(1+0.1/4)^5\)
      4. \(1000(1+0.1/2)^5\)
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    • Future Value with Quarterly Compounding - Example-2 Page
      0900-3-eco
      You have deposited $ 1,500 in an account that promises to pay 8% compounded quarterly for the next five years. How much will you have in the account at the end?
      1. $ 1,598.33
      2. $ 2,020.92
      3. $ 2,228.59
      4. $ 2,203.99
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    • Continuous Compounding and Yearly Compounding - Difference Page
      PI-2008-32-eco
      A man has deposited $ 1,000 per year for three years in a bank that paid him 5% interest compounded annually. At the end of three years, he had $ 3,153 in his account. How much more would he have earned if the bank had paid him 5% interest compounded continuously?
      1. $ 300
      2. $ 30
      3. $ 3
      4. $ 0.30
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    • Weekly to Annual Interest Rate Page
      0900-1-eco
      A financial bank charges 1 percent per week on the loans. Assume there are exactly 52 weeks in a year. What is the effective annual interest rate?
      1. 22.55%
      2. 38.98%
      3. 67.77%
      4. 52%
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    • Monthly Interest Equivalent to Quarterly Interest Page
      0900-2-eco
      What is the monthly interest rate (in %) equivalent to a quarterly interest rate of 2.5%?
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    • Quarterly Interest and Effective Annual Interest Page
      0900-15-eco
      Bank \(A\) offers you an (effective) annual interest rate of 6%; and, bank \(B\) offers an interest rate of 1.5% per quarter. Which of these two banks offers the best return?
      1. Bank \(A\)
      2. Bank \(B\)
      3. Bank \(A\) and \(B\) offer equal returns
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    • Present Worth of Periodic Cash Flows Page
      2014-43-eco
      A cash flow of $ 12,000 per year is received at the end of each year (uniform periodic payment) for 7 consecutive years. The rate of interest is 9% per year compounded annually. The present worth (in $) of such cash flow at time zero is ______
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    • Lumpsum Payment for Periodic Expenses Page
      0900-29-eco
      A manufacturing firm entered into a ten-year contract for raw materials which required a payment of $ 100,000 initially and $ 20,000 per year beginning at the end of the fifth year. The company made unexpected benefits and asked that it be allowed to make a lump sum payment at the end of third year to pay off the remainder of the contract. What lump sum (in $) is necessary if the interest rate is 8% ?
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    • Maturity Value of Periodic Deposits Page
      0900-10-eco
      Calculate the maturity value (future worth) at the end of 4 years, for a periodic deposit of $ 1250 made at the start of every month, for 4 years. Interest rate is 10.5% per year, compounded quarterly.
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    • Future Worth of Deposits Page
      0900-16-eco
      The future worth (in year 8) of $ 10,000 deposited at the end of year 3, $ 10,000 deposited at the end of year 5, and $ 10,000 deposited at the end of year 8 at an interest rate of 12% per year is closest to
      1. $ 46,200
      2. $ 32,100
      3. $ 41,670
      4. $ 39,300
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    • Future Worth of Periodic Deposits Page
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      0900-17-eco
      If $ 500 is invested at the end of each year for six years, at an effective annual interest rate of 7%, what is the toal amount available upon the deposit of the sixth payment?
      1. $ 4260
      2. $ 3000
      3. $ 3577
      4. $ 3210
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    • Effect of Inflation - Example-1 Page
      0900-18-eco
      A company invests $ 10,000 today to be repaid at the end of five years in one lump sum at 12% compounded annually. If the rate of inflation is 3% compounded annually, how much profit, in present day dollars, is realized over the five years?
      1. 5202
      2. 5626
      3. 7623
      4. 3202
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    • Effect of Inflation - Example-2 Page
      0900-24-eco
      Forty years ago, gum cost five cents a pack. Today it costs 99 cents a pack. Assume that the increase in the price of gum is completely related to inflation and not to other factors. What is the inflation rate applicable for that 40 years? (in %)
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