Time Value of Money Practice Problems

Prepared by Pamela Peterson Drake
  1. How long does it take for an investment to quadruple in value if the investment yields 6% per year?

  2. What is the effective annual rate of interest for a loan that has an 18% annual percentage rate, compounded monthly?

  3. The average price of a movie ticket at the end of 1988 was $5.50 and the average price of a movie ticket at the end of 1990 was $6.00. At what annual rate did ticket prices grow?

  4. If I invest $100 today in an account that earns 10% per year, compounded semi-annually, how much will I have in this account at the end of twenty years if I make no withdrawals?

  5. Suppose that I am trying to borrow money from you to finance my business. And suppose that I promise to repay you in two installments, one payment in two years of $5,000 and one payment in four years for $10,000. If your opportunity cost of funds is 10%, how much are you willing to lend me?

Solutions