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Exam 14: Time Value of Money

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Question 31

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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 it can earn a 7% return compounded annually,how much must the company invest in the fund today to equal the $200,000 at the end of 4 years?

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Question 32

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A company needs to have $150,000 in 5 years,and will create a fund to insure that the $150,000 will be available.If it can earn a 6% return compounded annually,how much must the company invest in the fund today to equal the $150,000 at the end of 5 years? (PV of $1,FV of $1,PVA of $1,and FVA of $1) (Use appropriate factor(s) from the tables provided.)

A) $141,000
B) $112,095
C) $100,000
D) $45,000
E) $105,000

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

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Question 33

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

Jackson has a loan that requires a $17,000 lump sum payment at the end of four years.The interest rate on the loan is 5%,compounded annually.How much did Jackson borrow today? (PV of $1,FV of $1,PVA of $1,and FVA of $1) (Use appropriate factor(s) from the tables provided.)

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

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

How long will it take an investment of $25,000 at 6% compounded annually to accumulate to a total of $35,462.50? (PV of $1,FV of $1,PVA of $1,and FVA of $1) (Use appropriate factor(s) from the tables provided.)

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

An individual is planning to set-up an education fund for his grandchildren.He plans to invest $10,000 annually at the end of each year.He expects to withdraw money from the fund at the end of 10 years and expects to earn an annual return of 8%.What will be the total value of the fund at the end of 10 years? (PV of $1,FV of $1,PVA of $1,and FVA of $1) (Use appropriate factor(s) from the tables provided.)

Which interest rate column would you use from a present value or future value table for 8% interest compounded quarterly?

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

Hao made a single investment which,after 5 years invested at 12% compounded semiannually,has accumulated to $214,900.How much did Hao invest initially? (PV of $1,FV of $1,PVA of $1,and FVA of $1) (Use appropriate factor(s) from the tables provided.)

If we want to know the value of present-day assets at a future date,we can use:

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?

Patricia wants to invest a sum of money today that will yield $10,000 at the end of 6 years.Assuming she can earn an interest rate of 6% compounded annually,how much must she invest today? (PV of $1,FV of $1,PVA of $1,and FVA of $1) (Use appropriate factor(s) from the tables provided.)

A company needs to have $150,000 in 5 years,and will create a fund to insure that the $150,000 will be available.If it can earn a 6% return compounded annually,how much must the company invest in the fund today to equal the $150,000 at the end of 5 years?

An interest rate is also called a discount rate.

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?

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

The present value of $5,000 per year for three years at 12% compounded annually is $12,009.(PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)