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					                             BA 229 – Personal Finance

                                 Time Value of Money

1.   You have decided it is time to buy a new car. You feel you can afford to pay $500
     each month toward a car payment. You have learned that the going rate for car
     loans is 7%. Now you want to figure out how much of loan you can afford. Which
     formula would you use to calculate this value?
     a. PV = FV x IF
     b. FV = PV x IF
     c. PVA = PMT x IF
     d. FVA = PMT x IF

2.   Johnson Electronics is looking for a silent partner to invest in their firm. They are
     willing to sign a promissory note guaranteeing a 5% return after five years. Which
     formula should I use if I want $500,000 at that time, and want to know how much I
     must invest today?
     a. PV = FV x IF
     b. FV = PV x IF
     c. PVA = PMT x IF
     d. FVA = PMT x IF

3.   The first of January 2002 I want to start a Christmas Club account at my credit
     union to start saving for next Christmas. They are offering a 3.5% interest rate,
     compounded monthly. I want to know how much I will have in December 2002 if I
     put $100 in the account every month. Which formula should I use?
     a. PV = FV x IF
     b. FV = PV x IF
     c. PVA = PMT x IF
     d. FVA = PMT x IF

4.   Using the scenario in #3 above, if I only want to put in a lump deposit of $500 in
     January, with no monthly deposits, which formula would I use to determine the
     balance in the account in December 2002?
     a. PV = FV x IF
     b. FV = PV x IF
     c. PVA = PMT x IF
     d. FVA = PMT x IF


     PV = FV x 1 / (1 + i)n
     FV = PV x (1 + i)n
     PVA = PMT x [1 – (1 / (1 + i)n)] / i
     FVA = PMT x [(1 + i)n – 1] / i

				
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posted:4/18/2012
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