Fin 3140
Time Value of Money Homework
Frohlich
Name_______________________
Spring, 2000
Directions: Draw a time line, note PV, FV, I/Y, N, and Pymt with the appropriate
numbers or CPT
1. A. You know you can afford $350.00 a month for a new car. If new car loans are at
7% for four years, what is the maximum value of the loan today?
B. Call a local lending institution and ask what percentage is needed for a
downpayment on the car. Record the (2) name of the institution, (3) the name and
position of the individual you talked with, and (3) the percentage downpayment.
Using the percentage you were given, figure the total sale price of the car.
C. If you are investing in a Certificate of deposit (3 months--call a credit union and a
commercial bank to find their 3 month CD rate), how long will it take you to save the
downpayment calculated in B (difference between the loan amount in A and sale
price in B) if you can save the $350 a month?
2. You are planning on paying your student loan off as quickly as possible. You've
decided that the $10,000 you borrowed will be paid back by the end of five years.
With an 8% interest rate, what must you pay each month in order to achieve your
goal?
3. You need $10,000 for a downpayment on a house. You can save $300 a month
towards the house. You wish to purchase the house in 18 months. What is the
interest rate you must earn to achieve the goal?
4. A. If you buy utility stock today for child's education ($1000) and it is earning 20%
per year. What will the value of your child's education be in 18 years?
B. If you put $25 every two weeks (26 times per year) into a savings account at 5%
what will the account be worth in 18 years (26*18 periods)? Interest is compounded
every two weeks.