Practice Makes Perfect: Time Value of Money

Have you ever felt completely stuck when it comes to exams and practical application of theory?

You are not alone!

Your university and online courses are great at explaining concepts but give you almost no chances to practice that theory. How do they expect you to pass that exam with no practice?!

These 100 questions are designed to give you the chance to apply your theoretical knowledge and get ready for that upcoming test. They have been carefully constructed based on real university exams and are accompanied by worked through solutions.

These questions require you to understand the basic formulas involved in discounting and will push you past your comfort level. We recommend that you go through these questions no matter what stage of education you are at: Beginner students will be able to practice their new knowledge, Intermediate students will be able to refine their skills, and Advanced students will be able to keep their skills sharp.

Example Questions:

1. Elom Nusk estimates that he'll need $5,368m (in terms of today's value of money) to explore Uranus. He plans to invest $800m every year starting next year in a secret vehicle that guarantees 7% annually compounded interest. How many years will it take Elom to have enough money?
   

2. You decide to finance an ePhone worth £150,000 by paying £4,000 every 6 months. You can borrow and invest at a fixed annual rate of 5% with semi-annual compounding. How many years will it take you to pay everything off?
   

3. Chuck Borris is 30 years' old and is currently earns £40,000 per annum teaching how to round-house kick. He expects his salary to increase at a fixed rate of 5% every year until he retires at the age of 60. If he can force the bank to give him a savings account that will yield 8% forever, what is the PV of all the payments that Chuck will make?

TOPICS COVERED:

• Present and Future Values

• Discount Rates

• Perpetuities

• Annuities

• Interest rates

• Net Present Values (NPV)

• Internal Rate of Return (IRR)

• Discounted Cash Flows (DCF)

• Dividend Discount Model (DDM)

• Bond Prices

• Yields to Maturity

All students are encouraged to join the community discord where they can ask questions and get clarification on any topics.

PRACTICE MAKES PERFECT