Deck 26: Time Value of Money

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

With deposits of $5,000 at the end of each year,you will have accumulated $38,578 at the end of the sixth year if the annual rate of interest is 10%.

Answer 3

True

Question 4

Sandra has a savings account that is now $50,000.She started with $28,225 and earned interest at 10% compounded annually.It took five years to accumulate the $50,000.

Question 5

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

Question 6

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.

Question 7

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

Question 8

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.

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

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?

A) $ 55,606
B) $137,681
C) $222,425
D) $265,764
E) $350,000

Question 15

A company can use present and future value computations to estimate the interest component of holding assets over time.

Question 16

An interest rate is also called a discount rate.

Question 17

Interest is:

A) Time.
B) A borrower's payment to the owner of an asset for its use.
C) The same as a savings account.
D) Always a liability.
E) Always an asset.

Question 18

The present value factor for determining the present value of a single sum to be received three years from today at 10% interest compounded semiannually is 0.7462.

Question 19

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

Question 20

In a present value or future value table,the length of one time period may be one year,one month,or any other length of time depending on the situation.

Question 21

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

Question 22

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?

Question 23

Chad is setting up a retirement fund,and he plans on depositing $5,000 per year in an investment that will pay 7% annual interest.How long will it take him to reach his retirement goal of $69,080?

A) 13.816 years
B) 0.072 years
C) 10 years
D) 20 years
E) 5 years

Question 24

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?

Question 25

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

A) $24,838.00
B) $21,668.80
C) $31,049.00
D) $40,000.00
E) $44,800,00

Question 26

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 two years?

A) $4,433.80
B) $4,340.00
C) $4,390.40
D) $3,920.00
E) $3,500.00

Question 27

Thompson Company has acquired a machine from a dealer which 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?

Question 28

How long will it take an investment of $25,000 at 6% compounded annually to accumulate to a total of $35,462.50?

A)4 years
B)5 years
C)6 years
D)2 years
E)10 years

Question 29

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?

Question 30

Jon Shear 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?

A) Five payments
B) Six payments
C) Four payments
D) Three payments
E) More than six payments

Question 31

A company is considering an investment that will return $20,000 at the end of each semiannual period for four years.If the company requires an annual return of 10%,what is the maximum amount it is willing to pay for this investment?

A) Not more than $63,398
B) Not more than $126,796
C) Not more than $80,000
D) Not more than $129,264
E) Not more than $160,000

Question 32

A company expects to invest $5,000 today at 12% annual interest and plans to receive $15,529 at the end of the investment period.How many years will elapse before the company accumulates the $15,529?

A) 0.322 years
B) 3.1058 years
C) 5 years
D) 8 years
E) 10 years

Question 33

Explain the concept of the future value of an annuity.

Question 34

An individual is planning to set-up an education fund for her children.She plans to invest $10,000 annually at the end of each year.She 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?

A) $ 46,320
B) $ 67,107
C) $100,000
D) $144,870
E) $215,890

Question 35

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

A) $72,096
B) $113,004
C) $147,202
D) $86,590
E) $200,000

Question 36

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

A) 5%
B) 8%
C) 10%
D) 12%
E) 15%

Question 37

Explain the concept of the present value of an annuity.

Question 38

Sam has a loan that requires a single payment of $4,000 at the end of three years.The loan's interest rate is 6%,compounded semiannually.How much did Sam borrow?

A) $3,358.40
B) $4,000.00
C) $3,660.40
D) $4,776.40
E) $3,350.00

Question 39

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

Question 40

What is interest?

Question 41

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?

Question 42

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

Question 43

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?

Question 44

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?

Question 45

You hope to retire in 10 years.Regrettably you are only just now beginning to save money for this purpose.You expect to save $6,000 a year at an annual rate of 8%.How much will you have accumulated when you retire?

Question 46

Daley Co.lends $524,210 to Davis Corporation.The terms of the loan require that Davis repay the loan with six semiannual period-end payments of $100,000 each.What semiannual interest rate is Davis paying on the loan?

Question 47

To calculate present value of an amount,two factors are required: __________________ and ___________________.

Question 48

The interest rate is also called the __________________ rate.

Question 49

A company is beginning a savings plan.It will save $15,000 per year for the next 10 years.How much will the company have accumulated after the tenth year-end deposit,assuming the fund earns 10% interest?

Question 50

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

Question 51

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

Question 52

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?

Question 53

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?

Question 54

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?

Question 55

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

Question 56

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