Time value of money

Question 1

Find the future value of an investment of $100 000 made today for 5 years and paying 8.75 per cent for the following compounding periods:

a. quarterly
b. monthly
c. daily
d. continuous

Question 2

Maria Lukas has been offered a future payment of $750 2 years from now. If her opportunity cost is 6.5 per cent compounded annually, what should she pay for this investment today?

Question 3

Your brother has asked you for a loan and has promised to pay back $7750 at the end of 3 years. If you normally invest to earn 6 per cent per annum, how much will you be willing to lend to your brother?

Question 4

Tracy Chapman is saving to buy a house in 5 years. She plans to have a 20 per cent deposit at that time, and she believes that she will need $70 00 for the deposit. If Tracy can invest in a fund that pays 9.25 per cent annually, how much will she need to invest today?

Question 5

You want to buy some zero coupon bonds that have a value of $1000 at the end of 7 years. The bonds are said to pay 4.5 per cent interest per annum. How much should you pay for them today?

Question 6

You are in desperate need of cash and turn to your uncle who has offered to lend you some money. You decide to borrow $1300 and agree to pay back $1500 in 2 years. Alternatively, you could borrow from your bank that is charging 6.5 per cent interest per annum. Should you go with your uncle or the bank?

Question 7

You invest $150 in an investment fund today that pays 9 per cent interest per annum. How long will it take to double your money?