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Exam 26: Time Value of Money

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Question 21

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A company borrows money from the bank by promising to make 8 semiannual payments of $9,000 each. How much is the company able to borrow if the interest rate is 10% compounded semiannually?

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Question 22

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A company borrows money from the bank by promising to make 6 annual year-end payments of $25,000 each. How much is the company able to borrow if the interest rate is 9%?

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Question 23

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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?

A company needs to have $200,000 in 4 years, and will create a fund to insure 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 4 years?

An interest rate is also called a discount rate.

The present value of $5,000 per year for three years at 12% compounded annually is $12,009. Calculation: $5,000 x 2.4018 = $12,009.

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?

When you reach retirement age, you will have one fund of $100,000 from which you are going to make annual withdrawals of $14,702. The fund will earn 6% per year. For how many years will you be able to draw an even amount of $14,702?

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

Crowe Company has acquired a building with a loan that requires payments of $20,000 every six months for 5 years. The annual interest rate on the loan is 12%. What is the present value of the building?

The future value of $100 compounded semiannually for 3 years at 12% equals $140.49. Calculation: $100 x1.4185 = $141.85.

Explain the concept of the present value of a single amount.

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

The interest rate is also called the __________________ rate.

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

Explain the concept of the future value of an annuity.

The present value factor for determining the present value of $6,300 to be received three years from today at 10% interest compounded semiannually is 0.7462.

Keisha has $3,500 now and plans on investing it in a fund that will pay her 12% interest compounded quarterly. How much will Keisha have accumulated after 2 years?

Troy has $105,000 now. He has a loan of $175,000 that he must pay at the end of 5 years. He can invest his $105,000 at 10% interest compounded semiannually. Will Troy have enough to pay his loan at the end of the 5 years?

Explain the concept of the future value of a single amount.