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Exam 25: Time Value of Money

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Question 41

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From the perspective of an account holder,a savings account is a liability with interest.

A) True
B) False

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Question 42

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To calculate present value of an amount,two factors are required: The ________ and the________.

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Interest r...

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Question 43

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Garcia Brass Fixtures is planning on replacing one of its machines 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 Garcia have accumulated at the end of five years to replace the machine?

A company has $46,000 today to invest in a fund that will earn 4% compounded annually.How much will the fund contain at the end of 6 years?

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) $\bold{\text{(Use appropriate factor(s)from the tables provided.)}}$ A)4 years B)5 years C)6 years D)2 years E)10 years

A company is beginning a savings plan to purchase a new building.It will be saving $43,000 per year for the next 10 years.How much will the company have accumulated after the tenth year-end deposit,assuming the fund earns 9% interest?

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?

Future value can be found if the interest rate (i),the number of periods (n),and the present value (p)are known.

Which column (i) and row (n) would you use from a present value or future value table for 8% interest compounded quarterly for 6 years?

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.(PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s)from the tables provided.)}}$

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

Molly borrows money by promising to make a single payment of $100,000 at the end of 5 years.How much money is Molly able to borrow if the interest rate is 10%,compounded semiannually? (PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s) from the tables provided.) }}$

Marc Lewis expects an investment of $25,000 to return $6,595 annually.His investment is earning 10% per year.How many annual payments will he receive? (PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s) from the tables provided.) }}$

The Masterson family is setting up a vacation fund,and they plan on depositing $1,000 per quarter in an investment that will pay 12% annual interest.What amount will they have available for their vacation at the end of 2 years? (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 has $46,000 today to invest in a fund that will earn 4% compounded annually.How much will the fund contain at the end of 6 years? (PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s) from the tables provided.) }}$

Interest may be defined as:

A company is considering an investment that will return $22,000 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? (PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s) from the tables provided.) }}$

The present value of eight $5,000 semiannual payments invested for 4 years at 8% compounded semiannually is $33,663.50.(PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s)from the tables provided.)}}$

Define interest.

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