Professional Documents
Culture Documents
Bank of Singapore
Time Value of Money Analysis
You have applied for a job with a local bank. As part of its evaluation process, you must take an
examination on time value of money analysis covering the following questions.
A. Draw time lines for (1) a $100 lump sum cash flow at the end of Year 2, (2) an ordinary annuity of
$100 per year for 3 years, and (3) an uneven cash flow stream of -$50, $100, $75, and $50 at the end of
Years 0 through 3.
B. (1) What’s the future value of $100 after 3 years if it earns 10%, annual compounding?
(2) What’s the present value of $100 to be received in 3 years if the interest rate is 10%, annual
compounding?
C. What annual interest rate would cause $100 to grow to $125.97 in 3 years?
D. If a company’s sales are growing at a rate of 20% annually, how long will it take sales to double?
E. What’s the difference between an ordinary annuity and an annuity due? What type of annuity is shown
here? How would you change it to the other type of annuity?
0 1 2 3
| | | |
0 100 100 100
F. (1) What is the future value of a 3-year, $100 ordinary annuity if the annual interest rate is 10%?
(2) What is its present value?
(3) What would the future and present values be if it was an annuity due?
G. A 5-year $100 ordinary annuity has an annual interest rate of 10%.
(1) What is its present value?
(2) What would the present value be if it was a 10-year annuity?
(3) What would the present value be if it was a 25-year annuity?
(4) What would the present value be if this was a perpetuity?
H. A 20-year-old student wants to save $3 a day for her retirement. Every day she places $3 in a
drawer. At the end of each year, she invests the accumulated savings ($1,095) in a brokerage account
with an expected annual return of 12%.