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TCO 1 Time value of money relationships & applications; opportunity
costs; personal financial statements -Problem Set 1
1. Ben Collins plans to buy a house for $65,000. If that real estate
property is expected to increase in value 5 percent each year, what
would its approximate value be seven years from now?
2. At an annual interest rate of five percent, how long would it take for
your savings to double?
3. In the mid-1990s, selected automobiles had an average cost of
$12,000. The average cost of those same motor vehicles is now
$20,000. What was the rate of increase for this item between the two
time periods?
4. A family spends $28,000 a year for living expenses. If prices
increase by 4 percent a year for the next three years, what amount will
the family need for its living expenses?
5. What would be the yearly earnings for a person with $6,000 in
6. Elaine Romberg prepares her own income tax return each year. A
tax preparer would charge her $60 for this service. Over a period of 10
years, how much does Elaine gain from preparing her own tax return?
Assumes she can earn 3 percent on her savings.
7. Tran Lee plans to set aside $1,800 a year for the next six years,
earning 4 percent. What would be the future value of this savings
amount?
8. If you borrow $8,000 with a 5 percent interest rate to be repaid in
five equal payments at the end of the next five years, what would be the
amount of each payment? (Note: Use the present value of an annuity
table in the Chapter Appendix.)