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61FIN2FIM - FINANCIAL MANAGEMENT TUTORIAL 4 – TIME VALUE OF MONEY All exercises below are required exercises. If you exhaust the exercises, do exercises in the corresponding textbook. We require that you complete at least 13 exercises before attending the tutorial classes and send your works to your tutor. 1. What is the future value of $1,000 invested for 5 years at an interest rate of 5% p.a.?

2. If you deposit $1,000 in a bank that pays interest rate of 8% annually, how much will be in your account after 6 years?

3. What is the future value of $1,000 invested for 5 years at an interest rate of 5%, compounded semi-annually?

4. If you deposit $1,000 in a bank that pays interest rate of 8% p.a, compounded semi-annually, how much will be in your account after 6 years?

5. Suppose that bank A pays you 10% interest rate for $2,000 deposit and bank B pays you the same 10% but compounded semi-annually. Which bank would you deposit your $2,000 for 5 years? Explain your choice using future value numbers.

6. What is the future value of $1000, continuously compounded at an interest rate of 4.5% for 7 years?

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7. How many years will it take for $12,000 to grow to be $23,605.82 if it is invested in an account paying interest rate of 7%?

8. How many months will it take for $10,000 to grow to be $20,969.06 if it is invested in an account paying interest rate of 8%.

9. What annual interest rate must $5,000 be invested so that it will grow to be $7,693.12 in 5 years?

10. If you wish to accumulate $20,000 in 10 year, how much would you deposit today in an account that pays an annual interest rate of 7%

11. What is the present value of $10,000 to be received in 5 years if the interest rate is 6%?

12. What is the present value of $1,000 to be received in 5 years if the interest rate is 10%, compounded monthly?

13. What is the present value of $1,000 to be received in 5 years if the interest rate is 10%, compounded weekly?

14. What is the effective annual rate for the investment with the annual interest rate of 10%, pay semi-annually? Page 2 of 3

15. You invest $1,000 for 5 years. The investment pays an annual interest rate of 12%, compounded monthly. What is the effective annual rate for the investment?

16. You are offered an investment that pays $10,000 in year 1, $2,000 in year 2, $30,000 in year 3, $15,000 in year 4. Another similar risk investment alternative offers 6% interest rate with annually compounded. What is the value of that set of cash flows in today’s dollar?

17. You won a prize of $10,000. This will be paid to you into two equal amounts of $5,000 at the end of year 1 and year 2. If you had the money now, you would deposit it in an account paying 12% with monthly compounding. What is the present value of the stream of payment you will receive?

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