1. Present & Future Values: Lump Sums Chapter Five

2. Problem Set – Present & Future Values 1.The town of Banff has a population of 5,000. If Banff’s population is growing at 2.5% per year, what will it’s population be in 20 years? ($8,193) 2.Your father has agreed to help you purchase a new car, contingent upon your finishing your degree and finding a job. If you believe your new car will cost $25,000 when you purchase it 2 years from today, how much must your dad set aside today, if you can earn 7% on your funds? ($21,836) 3.You are named as the beneficiary of a trust fund established by a wealthy relative. If the fund will pay you $50,000 on your 30 th birthday and you are 22 today, what is the value of the fund today, given a discount rate of 10%. ($23,325) 4.You purchased Nortel at $3.10 two years ago. Today, Nortel is trading at $3.80. What is your annually compounded rate of return on your Nortel investment? (10.72%)

3. Problem Set – Present & Future Values 5.You have invested $5,000 at 8%. How long will it take for your money to double? (9.01 years) 6.Last summer you started a lawn maintenance company. Sales were $100,000 for the year. If you believe you can grow your sales by 25% per year, what would your sales be after three years in business? ($195,312) 7.You have a choice between investing in Asset A, which pays 6% simple interest or Asset B, which pays 5.75% compounded annually. If you intend to keep the investment for 10 years, should you invest in Asset A or Asset B? (A - $1,600; B - $1,749. Choose B) 8.Your company has been named as a defendant in a lawsuit. The potential damages are $100,000, but it will take three years before payment is required. How much should you set aside today to cover the potential liability, given an 8% discount rate? ($79,383) 9.Today, you set aside $5,000 to fund your dream vacation, which you intend to take 6 years from now. If the vacation will cost $10,000, what interest rate must you earn to make it possible? (12.25%)

4. Problem Set – Present & Future Values 10.You have invested $10,000 at 6%, compounded quarterly. How much money will you have after 10 years? ($18,140.18) 11.Jack began saving for retirement at age 20 by putting aside $5,000. Joe also set aside $5,000 but he waited until he turned 30. Both Jack and Joe want to retire at age 65. If both are able to earn 10% on their funds, how much more money will Jack have on their retirement date? (Jack: $364,452; Joe: $140,512; Difference = $223,940)