BU 111 Time Value of Money Problems- Answer Key
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?
r = .0475
n = 40
PMT = $1,200
FV ordinary annuityT (1 + r) – 1
FV ordinary annuity $1,200 (1 + .0475) - 1
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