More Time Value of Money Practice Problems

Prepared by Pamela Peterson Drake
  1. How much must I deposit in an account today so that I can withdraw $100 per year for four years, beginning two years from now, if my deposits earn 5% interest, compounded annually?

  2. How much must I deposit in an account today so that I can withdraw $1,000 each year for four years, my deposits earn 4% interest (compounded annually), and my first withdrawal is ten years from today?

  3. How much must I deposit in an account each year starting today so that I can withdraw $1,000 each year for four years, my deposits earn 4% interest (compounded annually), my first withdrawal is ten years from today, and my last deposit is nine years from today?

  4. Suppose Charlie borrows $100,000 today and must make monthly payments of $3,874.81 at the end of each month for thirty months. What is the annual percentage rate (APR) on Charlie's loan? What is the effective annual rate (EAR) on Charlie's loan?

  5. Calculate the effective annual rate (EAR) on a savings account with an annual percentage rate (APR) of 10% for the following compounding frequencies:

Solutions