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Exam 14: Time Value of Money

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Question 21

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

A) True
B) False

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Question 22

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An interest rate is also called a discount rate.

A) True
B) False

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Question 23

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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?

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

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?

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?

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?

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

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

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 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?

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

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?

What is interest?

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

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

Interest is:

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.

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?