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Exam 25: Time Value of Money

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Question 21

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Mason Company has acquired a machine from a dealer that 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?

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$30,402
Five years = 10 semiannual perio...

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Question 22

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

A) Present value computations.
B) Annuity computations.
C) Interest computations.
D) Future value computations.
E) Earnings computations.

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

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Question 23

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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) $\bold{\text{(Use appropriate factor(s) from the tables provided.) }}$

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?

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 the worth of the asset at the future date.

The present value of four $10,000 semiannual payments invested for 2 years at 12% compounded semiannually is $43,746.(PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s)from the tables provided.)}}$

Explain the concept of the future value of an annuity.

The future value of $100 compounded semiannually for 3 years at 12% equals $140.49.(PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s)from the tables provided.)}}$

Explain the concept of the present value of an annuity.

Jason has a loan that requires a single payment of $4,000 at the end of 3 years.The loan's interest rate is 6%,compounded semiannually.How much did Jason borrow? (PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s) from the tables provided.) }}$

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?

A company is creating a fund today by depositing $65,763.The fund will grow to $90,000 after 8 years.What annual interest rate is the company earning on the fund?

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?

The present value of an annuity table can be used to determine the value today of a series of payments to be received in the future.

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

The interest rate is also called the ________ rate.

Clara is setting up a retirement fund,and she plans on depositing $5,000 per year in an investment that will pay 7% annual interest.How long will it take her to reach her retirement goal of $69,082? (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 present value of a single amount.

Trey 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 Trey have enough to pay his loan at the end of the 5 years?

Protocol Company has acquired equipment from a dealer that requires equal payments of $12,000 at the end of each of the next five years.This transaction includes interest at 9%,compounded annually.What is the value of the machine today?