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Exam 26: Time Value of Money B

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Question 21

True/False

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The present value of $2,000 to be received nine years from today at 8% interest compounded annually is $1,000.

A) True
B) False

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Question 22

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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?

A) 0.322 years
B) 3.1058 years
C) 5 years
D) 8 years
E) 10 years

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

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Question 23

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What is interest?

Chad is setting up a retirement fund,and he plans on depositing $5,000 per year in an investment that will pay 7% annual interest.How long will it take him to reach his retirement goal of $69,080?

Explain the concept of the present value of an annuity.

The future value of an ordinary annuity is the accumulated value of each annuity payment with interest one period after the date of the final payment.

A company has $50,000 today to invest in a fund that will earn 7%.How much will the fund contain at the end of 8 years?

The present value of an annuity table can be used to determine the series of equal payments that are required by a loan agreement.

An _____________ is a series of equal payments occurring at equal intervals.

An interest rate is also called a discount rate.

A company can use present and future value computations to estimate the interest component of holding assets over time.

Madera Iron Sculpting is planning on replacing one of its robotic welders in five years by making a one-time deposit of $20,000 today and four yearly contributions of $5,000 beginning at the end of year 1.The deposits will earn 10% interest.How much money will Sierra have accumulated at the end of five years to replace the welder?

A company is considering an investment that will return $20,000 semiannually at the end of each semiannual period for 4 years.If the company requires an annual return of 10%,what is the maximum amount it is willing to pay for this investment?

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

Explain the concept of the future value of an annuity.

A company is setting aside $21,354 today,and wishes to have $30,000 at the end of three years for a down payment on a piece of property.What interest rate must the company earn?

Annette has a loan that requires a $25,000 payment at the end of three years.The interest rate on the loan is 5%,compounded annually.How much did Annette borrow today?

The number of periods in a future value calculation can only be expressed in years.

What amount can you borrow if you make six quarterly payments of $4,000 at a 12 % annual rate of interest?

Big League Sports borrowed $883,212,and must make annual year-end payments of $120,000 each.If Big League's interest rate is 6%,how many years will it take Big League Sports to pay off the loan?