1. Why do we say money has time value?
2. Why is it important for business managers to
be familiar with time value of money concepts?
3. Define Present Value.
4. Define Future Value.
5. What are present value and future value interest factors? (as in PVIF and FVIF)
6. (calculating future value) You buy a 6 year, 8% CD for $1,000. Interest is compounded annually. How much is it worth at maturity?
7. (calculating present value) What's the present value of $1,000 to be
received in 8 years? (Your required rate
of return is 7% a year.)
8. (calculating the rate of return) A friend promises to pay you $600 two years
from now if you loan him $500 today.
What interest rate is your friend offering you?
9. (calculating the future value of an
annuity) If you invest $100 a year for
20 years at 7% annual interest, how much will you have at the end of the 20th
10. (calculating the present value of an
annuity) How much would you be willing
to pay today for an investment that pays $800 a year at the end of the next 6
years? (Your required rate of return is
5% a year.