Present Value (PV) and Future Value (FV) Problems

1. Jane needs a total of $75,000 in 10 years to pay for the expected college expenses for her
granddaughter. If she can earn 8% on her investments, how much of a lump sum does Jane
need to invest today?
2. Rick wants to have $35,000 to buy a new truck at the end of four years. His bank has a fouryear CD paying 4% compounded quarterly. How much does Rick need to put into the CD now
to reach his goal?
3 When Denise retires in 17 years, she wants to have $400,000. If she can earn 6% on her
money, what amount should she invest today to achieve her goal?
4. When Ernie retired, he purchased an annuity that will pay him $6,000 at the beginning of each
year for the next 20 years. If Ernie wanted to earn 7% compounded annually on his money,
how much should Ernie have paid for the annuity?
5. Tracy won the lottery and has two choices for receiving her winnings. She can receive
$10,000 at the end of each year for the next 25 years, or she can take a check for $150,000
today. If Tracy can earn 5% on her money, which option should she take?
6.

Justin wants to buy a car. The seller has given him two choices. He can borrow the money
to pay for the car and pay $200 on the first day of each month for the next 2 1/2 years, or he
can pay cash today. If Justin earns 12% compounded monthly on his savings, whats the most
he should pay in cash today?
REMEMBER: Loan payments come at the END of a period. Even if they are paid on the
1st of each month, they are paid after you have had the use of the money you borrowed
for a month.

7.

Heather wants to have $20,000 saved up for a down payment on a $100,000 home. She
can earn 4% on her savings account. If she wants to buy the home in 3 years, what lump-sum
amount does she need to deposit today to achieve her goal?

8.

Matthew estimates that he will owe $5,000 in income taxes at the end of one year. If
Matthew can earn 12% compounded monthly, how much should he set aside today to have
enough saved to pay his taxes?

9.

Caitlin wants to have $85,000 available in 6 years to start her own business. If she can
earn 9% annually on her money, how much does she need to invest today?

10.

Larry wants to buy a bond that will be worth $10,000 at maturity in 7 years. The bond will
make $300 semi-annual payments. Whats the maximum price Larry should pay for the bond
if his required return is 8%? We will always assume bonds are purchased on the coupon
date after the coupon was paid. Therefore, the first interest payment will be in six
months.

11.

Julie deposits $250 on the first of each quarter into an investment account, which is
growing at 8% compounded quarterly. How much will her account be worth in 10 years?

12.

Jamie wants to invest $13,000 for 11 years. If he can earn 8% after tax, how much will his
account be worth?

13.

Deb has $125,000 in her retirement plan at work. She thinks her portfolio will earn 9%
compounded annually in the future. How much will her retirement account be worth in 15
years?

14.

Jim is saving up for his sons college education. He believes he will need a total of $90,000
when his son starts college in 5 years. If Jim invests $8,000 every six months (END) in an
account earning 6% compounded semi-annually, will he meet his goal on time?

15.

Lila is saving up to start her own part-time business. She currently has $4,000 in her
savings account and deposits $1,200 at the end of each 6 months. If she earns 4%
compounded semi-annually on her savings, how much will her account be worth in 2 years?

16.

Keith has $3,000 saved for a down payment on a house. If he adds $500 at the start of
every six months to an account earning 6% compounded semi-annually, how much will he
have in 4 years?

17.

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18.

Kevin is the beneficiary of a life insurance policy. He has the choice of receiving a lump
sum of $100,000 today, or he can receive $10,000 at the beginning of each year for 15 years.
If he can earn 7% on his money, which option should he take?

19.

Dianes portfolio is worth $22,000 today. If she can earn 11% on her investments, how
much will Dianes portfolio be worth in 25 years?

20.

Joe owns stock worth $5,000. He invests an additional $600 at the end of every six months
in this company. If the value of the stock grows 14% compounded semi-annually, how much
will Joes account be worth in 5 years?