Time Value of Money Practice Problems
Prepared by Pamela Peterson Drake
- How long does it take for an investment to quadruple in value if the
investment yields 6% per year?
- What is the effective annual rate of interest for a loan that has an
18% annual percentage rate, compounded monthly?
- 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?
- 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?
- 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?