Worksheet 1 – Time Value of Money

Scenario 1

Jonas Smith wants to accumulate a sum of money to pay for his MACC

program. Rather than investing a single amount today, he decides

to invest $5,000 a year over the next three years in a savings account

account paying 8% interest compounded semi-annually. He decides to

make the first payment to the bank immediately. How much will Jonas

have available in his account at the end of three years?

Scenario 2

Assume that you borrow $1,000 from a friend and intend to repay the

amount in five equal annual installments beginning one year from today.

Your friend wishes to be reimbursed for the loan at 7% per year.

What is the required annual payment that must be made to repay the

loan in five years?

Scenario 3

On June 30, 2010, Greyson Inc. issued $200 million of 10% bonds.

The bonds pay interest semi-annually and mature on June 30, 2030.

They were sold to yield 12% interest. What is the selling price of the

bond?

Instructions:

Using the tables at the back of Chapter 6, answer the questions above.

You MUST show all work in order to receive credit for the problems.

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