Question 1

You are little late planning your retirement, but are looking forward to retiring in 10 years. You expect to save $6,000 a year at an annual rate of 8%. How much will you have accumulated when you retire?

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Question 2

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?

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Question 3

Thompson 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?

Accepted Answer

Present Value = Future Value * Interest Factor
Present Value = $45,000 * 0.6756 = $30,402
0.6756 is the interest factor on the Present Value table; n = 5*2=10; i = 8%/2= 4%

Question 4

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?

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Question 5

A company borrows money from the bank by promising to make 6 annual year-end payments of $25,000 each. How much is the company able to borrow if the interest rate is 9%?

Accepted Answer

Present Value of an Annuity = Annuity * Interest Factor
Present Value of an Annuity = $25,000 * 4.4859 = $112,147.50
4.4859 is the interest factor on the Present Value of an Annuity table; n = 6; i = 9%

Question 6

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

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Question 7

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

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Question 8

Madera Iron Sculpting is planning on replacing 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?

Accepted Answer

Future Value = Present Value * Interest Factor
Future Value = $20,000 * 1.6105 = $32,210
1.6105 is the interest factor on the Future Value table; n = 5; i = 10%
Future Value of an Annuity = Annuity * Interest Factor
Future Value of an Annuity = $5,000 * 4.6410 = $23,205
4.6410 is the interest factor on the Future Value of an Annuity table; n = 4; i = 10%
Accumulated Funds = $32,210 + $23,205 = $55,415

Question 9

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 8 years?

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Question 10

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?

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Question 11

The interest rate is also called the __________________ rate.

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Question 12

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?

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Question 13

A company is beginning a savings plan. It will be saving $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?

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Question 14

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?

Accepted Answer

Present Value = Future Value * Interest Factor
Present Value = $25,000 * 0.8638 = $21,595
0.8638 is the interest factor on the Present Value table; n = 3; i = 5%

Question 15

Big League Sports borrowed $883,212, and must make annual year-end payments of $120,000 each. If Big League's interest rate is 6%, how many years will it take Big League Sports to pay off the loan?

Accepted Answer

Present Value of an Annuity = Annuity * Interest Factor
$883,212 = $120,000 * Interest Factor; Interest Factor = 7.3601
7.3601 is the interest factor on the Present Value of an Annuity table; i = 6%; n =10

Question 16

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

Accepted Answer

Future Value = Present Value * Interest Factor
Future Value = $105,000 * 1.6289 = $171,034.50
1.6289 is the interest factor on the Future Value table; n =5 * 2 = 10; i = 10/2 = 5%
Goal of $175,000 - Future Value of $172,034.50 = Shortage of $3,965.50

Question 17

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

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Question 18

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

Accepted Answer

Present Value of an Annuity = Annuity * Interest Factor
$524,210 = $100,000 * Interest Factor; Interest Factor = 5.2421
5.2421 is the interest factor on the Present Value of an Annuity table; n = 6; i = 4%
Davis is paying a 4% semi-annual rate or an 8% annual rate of interest

Question 19

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?

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Question 20

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

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Quiz 26: Time Value of Money