TVM Practice Problems

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TVM Practice Problems
Principles of Financial Management
FIN 335
Mortgage Problem
• The condominium at the beach that you want to
buy costs $249,500. You plan to make a cash
down payment of 20 percent and finance the
balance over 10 years at 6.75 percent. What will
be the amount of your monthly mortgage
payment?
• N = ____ I/Y = ______ P/Y = _____ PV = ____
• PMT = ________
FV = ________
• A. $2,809.10
B. $4,145.68
• C. $2,291.89
D. $3,287.46
Simple Interest [FV]
• You want to invest an amount of money today
and receive back twice that amount in the
future. You expect to earn 6% simple interest.
Approximately how long must you wait for
your investment to double in value?
• N = ___ I/Y = _____ P/Y = _____ PV = ______
• PMT= ______ FV = ______
• A. 8 years
B. 12 years
• C. 9 years
D. 10 years
Simple Interest [FV]
• Today, you deposit $10,750 in a bank account
that pays 3 percent simple interest. How much
interest will you earn over the next 7 years?
• N = ____ I/Y = ____ P/Y = ____ PV = ______
• PMT = ________ FV = ________
• A. $1,935.00
B. $2,471.14
• C. $2,086.06
D. $3,541.46
Present Value [PVA]
• Dustin is considering an investment that will
pay $3,000 a year for 10 years, starting
• 1 year from today. How much should Dustin
pay for this investment if he wishes to earn a 9
percent rate of return?
• N = ______ I/Y = ______
P/Y = _____
PV = ______ FV = ________
• A. $19,252.97
B. $17,985.74
• C. $20,415.57
D. $18,792.57
IRA Accumulation
• A few years after graduating from UNCW, you decide to take advantage of
the 401(k) retirement plan offered by your employer. Assume that you are
25 years old and expect to contribute to this plan every month for the next
35 years. You estimate that your average life-time salary at $7,000 per
month and that you will be able to contribute 5% of this amount each
month (.05 times $7,000 = $350.00 per month). The retirement plan is
managed by Vanguard and allows you to pick from a variety of funds. You
decide to invest your monthly contribution in the [conservative] Index 500
Fund. The fund’s prospectus notes that the Index 500 fund has averaged
10.4% return per year (compounded monthly) . If the fund averages a
10.4% return for the next 15 years how much money will you accumulate
(FV?) in the 401(k) in the next 15 years?
• N = ______ I/Y = ______ P/Y = _____ PV = ______ FV = ________
• A. $142,837.66
• C. $150,511.18
B. $171,855.17
D. $195,971.91
IRA Annuitization
• You have accumulated $675,000 in your IRA.
You decide to invest it in a government bond
fund paying 2.75% per annum. How much will
you monthly payment be if you annuitize for
25 years?
• N = ______ I/Y = ______ P/Y = _____
• PMT = _________ FV = ________
• A. $3,052.01
• B. $4,052.89
PV = __________
C. $3,113.85
D. $4,878.95
Bond Valuation
• Drakon, Inc. bonds have a face value of $1,000.
The bonds pay a 5 percent coupon, pay interest
semiannually, and mature in 12 years. What is the
current price of these bonds if the yield to
maturity (YTM) is 6.5 percent?
• N = ______ I/Y = ______ P/Y = _____
• PMT = _________ FV = ________
• A. $876.34
• C. $1,014.62
PV = __________
B. $705.14
D. $1,020.15
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