Time Value of Money Assignment (10 Questions)
This individual problem solving assignment is for Chapter 5: Time Value of Money (TVM)
assignments. There are 10 questions and each question is 4 points. Totally, this assignment
accounts for 4 x10 = 40 points. For each question, please show your work to reach the answers
rather than just report the answers. Please use another sheet of paper, if necessary.
- Colin has inherited $6,000 from the death of Grandma Anna. He would like to use this
money to buy his mom Hayley a new scooter costing $7,000 2 years from now. Will
Colin have enough money to buy the gift if he deposits his money in an account paying 8
percent compounded semi-annually? - A wealthy industrialist wishes to establish a $2,000,000 trust fund which will provide
income for his grandchild into perpetuity. He stipulates in the trust agreement that the
principal may not be distributed. The grandchild may only receive the interest earned. If
the interest rate earned on the trust is expected to be at least 7 percent in all future
periods, how much income will the grandchild receive each year? - Mr. Knowitall has been awarded a bonus for his outstanding work. His employer offers
him a choice of a lump-sum of $5,000 today, or an annuity of $1,250 a year for the next
five years. Which option should Mr. Knowitall choose if his opportunity cost is 9
percent? - You received $100 at the beginning of year 1, $200 is received at the beginning of year 2,
and $300 is received at the beginning of year 3. If these cash flows are deposited at 12
percent, what is the combined future value of the cash flows at the end of year 3? - You have provided your friend with a service worth $8,500. Your friend offers you the
following cash flow instead of paying $8,500 today. Should you accept his offer if your
opportunity cost is 8 percent?