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Exam 14: Time Value of Money

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Question 1

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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.

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B) False

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Question 2

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

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The present value of a single ...

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Question 3

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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?

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?

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.

A company is creating a fund by depositing $65,763 today. The fund will grow to $90,000 after eight years. What annual interest rate is the company earning on the fund?

Madera Iron Sculpting is planning to save the money needed to replace 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?

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

At an annual interest rate of 8% compounded annually, $5,300 will accumulate to a total of $7,210.65 in five years.

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

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

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

The interest rate is also called the __________________ rate.

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

Troy has $105,000 now. He has a loan of $175,000 that he must pay at the end of five 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 five years?

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 eight years?

Explain the concept of the future value of an annuity.

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?

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

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?