Question 2 -Time Value of Money Analysis You have applied for a job with a local

Question

Question 2 -Time Value of Money Analysis

You have applied for a job with a local bank. As part of its evaluation process, you must take an examination on time value of money analysis covering the following questions.

A.        (1)   How much would you have to invest today to receive $12,000 in six years at 12%.

B.         (2)   Your aunt offers you a choice of $100,000 in 10 years or, $45,000 today. If money is discounted at eight percent, which should you choose, show work?

C.                  Cousin Bertha invested $100,000 ten year ago at 12%, compounded quarterly, how much has she accumulated?

D.                 Rita Gonzales won the $60 million lottery. She is to receive $1 million a year of the next 50 years plus an additional lump sum payment of $10 million after 50 years. The discount rate is ten percent. What is the current value of her winnings.

E.                  What is the future value of a5- year, $500 ordinary annuity if the annual interest rate is 15%?

Explanation / Answer

1 Maturity 6 years FV 12000 Yield 12% PV 6079.57 WILL BE INVESTED TODAY 2 PV for 10 year deal 46319.34 So I will take10 year deal as it would result in higher present value 3 present value 326203.8 4 present value 10 million 5 Future value 1005.68

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