Question 1

Compute the present value of the following single amounts to be received at the end of the specified period at the given interest rate.

Accepted Answer

The answer of Compute the present value of the following...

Question 2

Below are excerpts from interest tables for 8% interest.
Column 1 is an interest table for the:
A)Future value of $1.
B)Present value of $1.
C)Future value of an annuity of $1.
D)Present value of an annuity of $1.

Accepted Answer

The table shows the future value of an annuity of $1.

Question 3

Below are excerpts from interest tables for 8% interest.
Column 4 is an interest table for the:
A)Future value of $1.
B)Present value of $1.
C)Future value of an annuity of $1.
D)Present value of an annuity of $1.

Accepted Answer

The present value of an annuity of $1 table is the most useful for calculating the worth of a series of equal payments made at regular intervals, such as a loan or lease payment.

Question 4

Quaker State Inc.offers a new employee a lump-sum signing bonus at the date of employment.Alternatively,the employee can take $8,000 at the date of employment plus $20,000 at the end of each of his first three years of service.Assuming the employee's time value of money is 10% annually,what lump-sum at employment date would make him indifferent between the two options?
A)$23,026.
B)$57,737.
C)$62,711.
D)None of the above is correct.

Accepted Answer

To make the employee indifferent, we need to compare the present value of both options.
Option 1: Lump sum at employment date
Option 2: $8,000 at employment date and $20,000 at the end of each of the first three years of service
Present value of option 1:
PV = $8,000/(1+10%)^0 + $20,000/(1+10%)^1 + $20,000/(1+10%)^2 + $20,000/(1+10%)^3
PV = $45,262.46
Therefore, to make the employee indifferent, the lump sum at the employment date should also be $45,262.46 or close to it. The closest answer choice is B, $57,737.

Question 5

Touche Manufacturing is considering a rearrangement of its manufacturing operations.A consultant estimates that the rearrangement should result in after-tax cash savings of $6,000 the first year,$10,000 for the next two years,and $12,000 for the next two years.Assuming a 12% discount rate,calculate the total present value of the cash flows.

Accepted Answer

The answer of Touche Manufacturing is considering a rearrangement of...

Question 6

George Jones is planning on a cruise for his 70th birthday party.He wants to know how much he should set aside at the end of each month at 6% interest to accumulate the sum of $4,800 in five years.He should use a table for the:
A)Future value of $1.
B)Present value of $1.
C)Future value of an annuity of $1.
D)Present value of an annuity of $1.

Accepted Answer

George should use the future value of an annuity of $1 table because he is making regular monthly deposits to accumulate a future sum.

Question 7

What is the value today of receiving five annual payments of $500,000,beginning one year from now,assuming an 11% discount rate?
A)$2,500,000.
B)$2,225,000.
C)$1,847,950.
D)$2,115,270.

Accepted Answer

The present value of an annuity can be calculated using the formula PV = PMT × [(1 - (1 + r)^-n) / r], where PMT is the payment amount, r is the discount rate, and n is the number of periods. Plugging in the values: PV = $500,000 × [(1 - (1 + 0.11)^-5) / 0.11] = $1,847,950.

Question 8

What is the value today of receiving $3,000 at the end of each year for the next three years,assuming an interest rate of 3% compounded annually?
A)$8,486.
B)$8,251.
C)$9,000.
D)$9,273.

Accepted Answer

We can use the formula for the present value of an annuity:

PV = C * [(1 - (1 + r)^(-n)) / r]

where PV is the present value, C is the amount received each year, r is the interest rate, and n is the number of years.

Plugging in the given values, we get:

PV = 3000 * [(1 - (1 + 0.03)^(-3)) / 0.03] = $8,486.22

Therefore, the answer is A).

Question 9

Miller borrows $300,000 to be paid off in three years.The loan payments are semiannual with the first payment due in six months,and interest is at 6%.What is the amount of each payment?
A)$55,379.
B)$106,059.
C)$30,138.
D)$60,276.

Accepted Answer

The correct answer is A because the amount of each payment is $55,379. This can be calculated using the formula for the present value of an annuity, which is:PV = PMT * [1 - (1 + r)^-n] / rwhere:PV is the present value of the annuityPMT is the amount of each paymentr is the interest rate per periodn is the number of periodsIn this case, the present value of the annuity is $300,000, the interest rate per period is 3% (since the interest rate is 6% per year and the payments are semiannual), and the number of periods is 6 (since there are 3 years and 2 payments per year). Plugging these values into the formula, we get:$300,000 = PMT * [1 - (1 + 0.03)^-6] / 0.03$300,000 = PMT * [1 - 0.80583] / 0.03$300,000 = PMT * 6.5514PMT = $300,000 / 6.5514PMT = $55,379

Question 10

At the end of each quarter,Patti deposits $500 into an account that pays 12% interest compounded quarterly.How much will Patti have in the account in three years?
A)$7,096.
B)$7,013.
C)$7,129.
D)$8,880.

Accepted Answer

The correct answer is A because the future value of an annuity is calculated using the formula FV = P * ((1 + r/n)^(n*t) - 1) / (r/n), where P is the periodic payment, r is the annual interest rate, n is the number of compounding periods per year, and t is the number of years. In this case, P = $500, r = 12%, n = 4 (since the interest is compounded quarterly), and t = 3. Plugging these values into the formula, we get FV = $500 * ((1 + 0.12/4)^(4*3) - 1) / (0.12/4) = $7,096.

Question 11

Tammy wants to buy a car that costs $10,000 and wishes to know the amount of the monthly payments,which will be made at the end of the month,with interest of 12% on the unpaid balance.She should use a table for the:
A)Future value of $1.
B)Present value of $1.
C)Future value of an annuity of $1.
D)Present value of an annuity of $1.

Accepted Answer

Tammy wants to know the amount of monthly payments that will be made, which is an annuity. She is also concerned about the interest on the unpaid balance, and therefore, she needs to use the present value of an annuity of $1 to calculate her monthly payments. This choice takes into account the time value of money and the interest rate. Therefore, the best choice in this case is D.

Question 12

Compute the future value of the following invested amounts at the specified periods and interest rates.

Accepted Answer

The answer of Compute the future value of the following...

Question 13

Compute the present value of the following single amounts to be received at the end of the specified period at the given interest rate.

Accepted Answer

The answer of Compute the present value of the following...

Question 14

Michaela would like to have $10,000 for a European vacation in four years.Currently,she has saved $8,000.If she puts $8,000 in an account that earns 6% interest,compounded annually,will she be able to take the vacation in four years?

Accepted Answer

The answer of Michaela would like to have $10,000 for...

Question 15

Sandra won $5,000,000 in the state lottery,which she has elected to receive at the end of each month over the next thirty years.She will receive 7% interest on unpaid amounts.To determine the amount of her monthly check,she should use a table for the:
A)Future value of $1.
B)Present value of $1.
C)Future value of an annuity of $1.
D)Present value of an annuity of $1.

Accepted Answer

Since Sandra will be receiving a fixed amount of money at the end of each month for a long period of time (30 years), she should use the table for the present value of an annuity of $1. This table will help her determine the present value of each monthly payment, taking into account the interest rate of 7% and the time value of money.

Question 16

What is the value today of receiving $5,000 at the end of each year for the next 10 years,assuming an interest rate of 12% compounded annually?
A)$87,744.
B)$28,251.
C)$50,000.
D)$15,529.

Accepted Answer

The value today of receiving $5,000 at the end of each year for 10 years at a 12% interest rate is the present value of an annuity. Using the present value of annuity formula, the correct calculation results in approximately $28,251.

Question 17

Zulu Corporation hires a new chief executive officer and promises to pay her a signing bonus of $2 million per year for 10 years,starting at the end of the first year.The value of this signing bonus is:
A)The present value of the annuity.
B)The future value of the annuity.
C)$20 million.
D)$0 because no cash is owed immediately.

Accepted Answer

The value of the signing bonus is an annuity paid at the end of each year for 10 years. Therefore, the best choice is A, which is the present value of the annuity.

Question 18

If you had an investment opportunity that promises to pay you $20,000 in three years and you could earn a 10% annual return investing your money elsewhere,what is the most you should be willing to invest today in this opportunity?

Accepted Answer

The answer of If you had an investment opportunity that...

Question 19

Claudine Corporation will deposit $5,000 into a money market account at the end of each year for the next five years.How much will accumulate by the end of the fifth and final payment if the account earns 9% interest?
A)$32,617.
B)$29,924.
C)$27,250.
D)$26,800.

Accepted Answer

To solve this problem, we can use the formula for the future value of an annuity:

FV = PMT * ((1 + r)^n - 1) / r

Where:
PMT = the periodic payment (in this case, $5,000)
r = the interest rate per period (in this case, 9% per year)
n = the number of periods (in this case, 5)

Plugging in the numbers, we get:

FV = $5,000 * ((1 + 0.09)^5 - 1) / 0.09
FV = $29,924.40

Therefore, the answer is B.

Question 20

Anthony would like to have $18,000 to buy a new car in three years.Currently,he has saved $15,000.If he puts $15,000 in an account that earns 6% interest,compounded annually,will he be able to buy the car in three years?

Accepted Answer

The answer of Anthony would like to have $18,000 to...

Quiz 13: Time Value of Money

Compute the present value of the following single amounts to be received at the end of the specified period at the given interest rate.

Below are excerpts from interest tables for 8% interest. Column 1 is an interest table for the:

Below are excerpts from interest tables for 8% interest. Column 4 is an interest table for the:

George Jones is planning on a cruise for his 70th birthday party.He wants to know how much he should set aside at the end of each month at 6% interest to accumulate the sum of $4,800 in five years.He should use a table for the:

What is the value today of receiving five annual payments of $500,000,beginning one year from now,assuming an 11% discount rate?

What is the value today of receiving $3,000 at the end of each year for the next three years,assuming an interest rate of 3% compounded annually?

Miller borrows $300,000 to be paid off in three years.The loan payments are semiannual with the first payment due in six months,and interest is at 6%.What is the amount of each payment?

At the end of each quarter,Patti deposits $500 into an account that pays 12% interest compounded quarterly.How much will Patti have in the account in three years?

Tammy wants to buy a car that costs $10,000 and wishes to know the amount of the monthly payments,which will be made at the end of the month,with interest of 12% on the unpaid balance.She should use a table for the:

Compute the future value of the following invested amounts at the specified periods and interest rates.

Compute the present value of the following single amounts to be received at the end of the specified period at the given interest rate.

Michaela would like to have $10,000 for a European vacation in four years.Currently,she has saved $8,000.If she puts $8,000 in an account that earns 6% interest,compounded annually,will she be able to take the vacation in four years?

Sandra won $5,000,000 in the state lottery,which she has elected to receive at the end of each month over the next thirty years.She will receive 7% interest on unpaid amounts.To determine the amount of her monthly check,she should use a table for the:

What is the value today of receiving $5,000 at the end of each year for the next 10 years,assuming an interest rate of 12% compounded annually?

Zulu Corporation hires a new chief executive officer and promises to pay her a signing bonus of $2 million per year for 10 years,starting at the end of the first year.The value of this signing bonus is:

If you had an investment opportunity that promises to pay you $20,000 in three years and you could earn a 10% annual return investing your money elsewhere,what is the most you should be willing to invest today in this opportunity?

Claudine Corporation will deposit $5,000 into a money market account at the end of each year for the next five years.How much will accumulate by the end of the fifth and final payment if the account earns 9% interest?

Anthony would like to have $18,000 to buy a new car in three years.Currently,he has saved $15,000.If he puts $15,000 in an account that earns 6% interest,compounded annually,will he be able to buy the car in three years?