Professional Documents
Culture Documents
Time Value of Money Practice Problems
Time Value of Money Practice Problems
Time Value of Money Practice Problems
Question # 1
Sasha has a ten-year loan at 10.25% and the installment are $1,100 at the end of
each year for two years and $1,500 at the end of each year for the rest of the term of
the loan. What is the loan balance after three installments?
Answer: __7,244___
if you want to use Financial Calculator to find the loan balance after three installments, you
can do that too ( In that case, you don’t need to show the table)
Question # 2
Robert was paid $3,663 at the end of each year for three years, starting end of year
2; and thereafter $2,442 at the end of each year for four years. Interest rate is
4.84%. If Raphael wants to accumulate $25,000 by the end of the 10th year, by how
much is Raphael over or under his goal?
Answer: $1850 Over
Question #3
Sasha signed a bank loan and agreed to pay the installments as follows: ~ $8.880 at
the end of each year for seven years and $50,000 at the end of 15th year. If the
interest rate is 5.95 percent for the first seven year and 2 percent higher thereafter,
how much was the bank loan?
Answer: $67752
Progoti Insurance Inc. is offering you a life insurance policy with the following
quotations: You pay the insurance company $121 at the end of each month for five
years, starting now and they will pay you $231 at the end of each month for five
years, starting fifteen years from today. The interest rate for this policy is 4.80% per
annum. Calculate the present value of these cash flows and decide whether you
should buy this policy.
Answer: No, Loss is $447
You pay 121 x PVA60, 0.40 = 6443
Note: When you convert the term(time) into months, you also convert the annual
interest rate to monthly aswell