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Exam 14: Time Value of Money

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Question 31

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Explain the concept of the present value of an annuity.

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The present value of an annuit...

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Question 32

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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.

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Question 33

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

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%.

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 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?

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?

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.

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

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?

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

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%?

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?

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

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

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

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?