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Exam 14: Time Value of Money

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Question 1

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With deposits of $5,000 at the end of each year, you will have accumulated $38,578 at the end of the sixth year if the annual rate of interest is 10%.

A) True
B) False

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Question 2

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Crowe Company has acquired a building with a loan that requires payments of $20,000 every six months for five years.The annual interest rate on the loan is 12%.What is the present value of the building?

A) $72,096
B) $113,004
C) $147,202
D) $86,590
E) $200,000

F) A) and B)
G) C) and E)

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Question 3

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The future value of $100 compounded semiannually for three years at 12% equals $140.49.

In a present value or future value table, the length of one time period may be one year, one month, or any other length of time depending on the situation.

Thompson Company has acquired a machine from a dealer which requires a payment of $45,000 at the end of five years.This transaction includes interest at 8%, compounded semiannually.What is the value of the machine today?

Interest is the borrower's payment to the owner of an asset for its use.

An interest rate is also called a discount rate.

A company expects to invest $5,000 today at 12% annual interest and plans to receive $15,529 at the end of the investment period.How many years will elapse before the company accumulates the $15,529?

What is interest?

The present value of 1 formula is often useful when a borrowed asset must be repaid in full at a later date and the borrower wants to know its worth at the future date.

An ordinary annuity refers to a series of equal payments made or received at the end of equal intervals.

A company is considering investing in a project that is expected to return $350,000 four years from now.How much is the company willing to pay for this investment if the company requires a 12% return?

Interest is:

The future value of an ________________ annuity is the accumulated value of each annuity payment with interest as of the date of the final payment.

A company is beginning a savings plan.It will save $15,000 per year for the next 10 years.How much will the company have accumulated after the tenth year-end deposit, assuming the fund earns 10% interest?

A company needs to have $200,000 in four years, and will create a fund to ensure that the $200,000 will be available.If they can earn a 7% return, how much must the company invest in the fund today to equal the $200,000 at the end of four years?

A company is setting up a sinking fund to pay off $8,654,000 in bonds that are due in seven years.The fund will earn 7% interest, and the company intends to put away a series of equal year-end amounts for seven years.What amount must the company deposit annually?

Daley Co.lends $524,210 to Davis Corporation.The terms of the loan require that Davis repay the loan with six semiannual period-end payments of $100,000 each.What semiannual interest rate is Davis paying on the loan?

What interest rate is required to accumulate $6,802.50 in four years from an investment of $5,000?

Future value can be found if the interest rate (i), the number of periods (n), and the present value (p)are known.