What is the value of a dollar received now compared to a dollar received in the future?

They have the same value.

The current dollar is worth less, because it hasn’t been invested yet.

The future dollar is worth more, because of inflation.

The current dollar is worth more, because it can be invested now.

2)

Intro

You invest $2,000 in a savings account that pays 4.6% interest per year.

Part 1

How much money will you have in one year?

3)

Intro

You make a one-time investment of $500 and leave it for 5 years, earning an annual interest rate of 7%.

Part 1

How much interest will you have earned after 5 years?

Part 2

If you leave the entire amount in your account for another 5 years and earn the same interest rate, how much interest will you earn over the second 5-year period? 

4)

Intro

Your favorite aunt has promised to help you with your school expenses by giving you $1,100 in one year. The appropriate interest rate is 10%. 

Part 1

You wonder how much your aunt’s promise is worth. What is the value in current dollar terms of the $1,100 promised for next year?

5)

Intro

GE just paid an annual dividend of $6. 

Part 1

If dividends are expected to grow by 4.3% per year, what will be the dividend in 6 years?

6)

Intro

Your grandmother left you $90,000 that you’ll receive when you turn 40 in 18 years. Since you’d rather have some money now, you want to sell your claim to the inheritance.

Part 1

What is the minimum amount that you should sell your claim for now if the interest rate is 4%?

Part 2

What is the minimum amount that you should sell your claim for now if the interest rate is 11%?

7)

Intro

The annual interest rate is 4%.

Part 1

What is the present value (PV) of $1,000 that you’ll receive in 20 years?

Part 2

If you invest the amount found in part 1 now, how much will you have after 20 years?

Part 3

If you invest the amount found in part 1 now, how much will you have after 10 years?

Part 4

If you invest the amount found in part 3 for another 10 years, how much will you have at the end?

8)

Intro

You have $3,000 in your savings account, and want to buy a car for $20,000.

Part 1

If you want to buy the car in 6 years, what interest rate would you need to earn?

9)

Intro

Your annoying neighbors always boast that their home doubled in value in 10 years.

Part 1

If their claim is true, what annual return does it imply?

10)

Intro

You have $3,000 in your savings account, and want to buy a car for $20,000.

Part 1

If you are not earning any more money and the interest rate on your savings account is 7% per year, how many years do you have to wait before you can buy the car? 

11)

Intro

You put $1,000 into a savings account that pays 10% in annual interest.

Part 1

How much money will you have after 4 years if the account pays only simple interest?

Part 2

How much money will you have after 4 years if the account pays interest compounded annually?