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BU111 (273)

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Department
Course
BU111
Professor
Sofy Carayannopoulos
Semester
Fall

Description
BU 111 Time Value of Money Problems- Answer Key Problems: Problem #1 Tiffany has decided to deposit \$1,200 into an account earning 4.75% per year for 40 years. How much will she have in her account at the end of the 40 year period? Solution: r = .0475 n = 40 PMT = \$1,200 FV ordinary annuityT (1 + r) – 1 r FV ordinary annuity \$1,200 (1 + .0475) - 1 .0475 FV = \$136,414.09 Problem #2 Christina wants to purchase a lottery ticket. Currently, there are 3 different lottery options she can choose from. Which lottery ticket should she purchase given that the interest rate is 5%? a) Annual payments of \$50,000 for 3 years starting immediately b) Annual payments of \$52,000 for 3 years starting one year from now c) A bonus of \$20,000 immediately and annual payments of \$45,000 starting one year from now Problem #3 Dave needs \$2,000,000 in order to retire and is able to save up \$25,000 per year. With an interest rate of 6%, how many years will Dave have to work before retiring? Problem #4 Tosha and her best friend Rebecca have decided to purchase a house in Waterloo that they can live in for the next three years and then rent to students. The house th
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