1. Jack Birch invested his inheritance at 4% annual interest and left the money invested without withdrawing any of the interest for 10 years. At the end of the 10 years, Jack withdrew the accumulated amount of money plus the accumulated interest of $35,000. What amount had Jack invested, assuming the investment earned simple interest?
2. The present value of $10,000 to be received in 5 years will be smaller if the discount rate is ___?
3. The amount you must deposit now in your savings account, paying 6% compound interest, in order to accumulate $15,000 for your first tuition payment when you start college in 4 years is____?
4. Davis Company is about to issue $900,000 of 8-year bonds paying a 12% interest rate with interest payable semiannually. The discount rate for such securities is 10%. Below are available time value of money factors that Davis uses to calculate compound interest.
|
8 periods, 10% |
16 periods, 5% |
8 periods, 12% |
16 periods, 6% |
| Present Value of 1 |
0.46651 |
0.45811 |
0.40388 |
0.39365 |
| Future Value of 1 |
2.14359 |
2.18287 |
2.47596 |
2.54035 |
| Present Value of an Annuity of 1 |
5.33493 |
10.83777 |
4.96764 |
10.10590 |
| Future Value of an Annuity of 1 |
11.43589 |
23.65749 |
12.29969 |
15.67253 |
To the closest dollar, how much can Davis expect to receive for the sale of these bonds?
5. Striegel Company has purchased equipment that requires annual payments of $60,000 to be paid at the end of each of the next 6 years. The appropriate discount rate is 12%. What amount will be used to record the equipment?
6. When determining the proceeds received when issuing a bond, the factor applied to the amount of the interest payments is determined from the table for the
1. present value of 1.
2. present value of an annuity of 1.
7. If a single future amount of $6,000 is to be received in 5 years and discounted at 6%, its present value is ____?
8. Yocum Company has just signed a capital lease contract for equipment that requires annual lease payments of $60,000 to be paid at the end of each of the next 4 years. The appropriate discount rate is 15%. What is the present value of the lease payments?
9. The amount you must deposit now in your savings account, paying 4% interest compounded annually, in order to accumulate $20,000 for a down payment 3 years from now on a new car is ____?
10. The amount you must deposit now in your savings account, paying 4% compound interest, in order to accumulate $5,000 for a down payment 4 years from now on a new car is ____?
11. Sturm Corporation earns 8% on an investment that will return $600,000, 5 years from now. Below is some of the time value of money information that Sturm has compiled that might help in planning compound interest decisions.
| Present Value of 1 for 5 periods at 8% |
0.68058 |
| Future Value of 1 for 5 periods at 8% |
1.46933 |
| Present Value of an Annuity of 1 for 5 periods at 8% |
3.99271 |
| Future Value of an Annuity of 1 for 5 periods at 8% |
5.86700 |
To the closest dollar, what is the amount Sturm should invest now to earn this rate of return?
12. If a single future amount of $7,000 is to be received in 4 years and discounted at 10%, its present value is____?
13. Which of the following discount rates will produce the largest present value?