Exam 7: Accounting and the Time Value of Money

A zero-interest bond pays $200,000 in 10 years. What amount would you be willing to pay to acquire the bond today if you want to earn a return of approximately 4%? Use the present value table of $1 provided. (Do not round any intermediary calculations, and round your final answer to the nearest dollar.) Excerpt of Present Value of $1 Table Periods \% 1 0.96154 2 0.92456 3 0.88900 4 0.85480 5 0.82193 6 0.79031 7 0.75992 8 0.73069 9 0.70259 10 0.67556

The factor for the present value of an ordinary annuity for 11% and eight periods is less than ________.

Cline Corporation deposits $75,000 every quarter in a savings account (beginning at the end of the current quarter) for the next five years so that it can purchase a new piece of machinery at the end of five years. The interest rate is 12%. How much money will Cline Corporation have at the end of five years? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)

Each year for the next 10 years, Carmen Lector will deposit $4,000 into an investment fund that pays 8% compounded annually. Use the following tables: Excerpt from the Present Value of an Ordinary Annuity of $1 Table Periods 8\% 9\% 10\% 1 0.92593 0.91743 0.90909 2 1.78326 1.75911 1.73554 3 2.57710 2.53130 2.48685 4 3.31213 3.23972 3.16986 5 3.99271 3.88965 3.79079 6 4.62288 4.48592 4.35526 7 5.20637 5.03295 4.86842 8 5.74664 5.53482 5.33493 9 6.24689 5.99525 5.75902 10 6.71008 6.41766 6.14457 Excerpt from the Present Value of an Annuity Due of $1 Table Periods 8\% 9\% 10\% 1 1.0 1.0 1.0 2 1.92593 1.91743 1.90909 3 2.78326 2.75911 2.73554 4 3.57710 3.53130 3.48685 5 4.31213 4.23972 4.16986 6 4.99271 4.88965 4.79079 7 5.62288 5.48592 5.35526 8 6.20637 6.03295 5.86842 9 6.74664 6.53482 6.33493 10 7.24689 6.99525 6.75902 a. What is the present value of those investment payments if the first of 10 deposits are made at the end of each year? b. What is the present value of those investment payments if the first of 10 deposits are made at the beginning of each year?

When two or more periods precede the payment of the first cash flow in a series of cash flows, the annuity is ________.

The value of a dollar today is greater than the value of a dollar in the future because a dollar today can be invested to earn interest.

All of the following are conditions for an ordinary annuity except ________.

Compound interest includes interest earned on interest.

In order to measure the purchase price of an investment in bonds, which of the following time value of money concepts is used?

Dover Company deposits $30,000 with Second National Bank in an account earning interest at 5% per annum, compounded semi-annually. How much will Dover have in the account after five years if interest is reinvested? Use the formula method. (Do not round any intermediary calculations, and round your final answer to the nearest dollar.)

You have discovered an investment opportunity that earns a(n) 3% rate of interest compounded quarterly. Which of the following amounts is approximately equal to the amount you should deposit today to have $8,000 in five years? Use the formula method. (Do not round any intermediary calculations, and round your final answer to the nearest dollar.)

Balance sheet values are calculated using compound interest (present value) calculations for all of the following except ________.

Which of the following items does not use an accounting measure based on present value?

On January 1, Yumati Electric borrows $200,000 at an interest rate of 6% today and will repay this amount by making 18 semiannual payments beginning May 31. What is the approximate amount of each payments that Yumati will need to make? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)

$70,000 is put in an investment account today. The investment account compounds interest at a rate of 2% per month. What amount will be available five years from today? Use the formula method. (Do not round any intermediary calculations, and round your final answer to the nearest dollar.)

Each year for the next 10 years, Carmen Lector will deposit $4,000 into an investment fund that pays 10% compounded annually. Use the formula approach. a. How much will Carmen have at the end of 10 years if the first of 10 deposits are made at the end of each year? b. How much will Carmen have at the end of 10 years if the first of 10 deposits are made at the beginning of each year?

An ordinary annuity is a series of equal periodic payments and an annuity due is a series of unequal periodic payments.

You decide to deposit $3,000 at a local bank for three years at a 5% rate of interest compounded quarterly. The future value of your investment is approximately equal to ________. (Use the formula method and round to the nearest dollar.

Dana Zorowski has recently started her accounting career and her 25th birthday is coming soon. She has been told that now is the ideal time to begin to prepare for retirement. She has determined that she would like to retire with a pension that will pay $50,000 per year in retirement benefits after she retires with the expectation that the retirement fund should last for 20 years. To meet her pension retirement benefit goals, how much should she deposit annually for the next 40 years in a retirement investment fund that earns 8%? Assume all retirement deposits and benefit payments occur at the end of each year. Use the following tables: Excerpt from Present Value of Ordinary Annuity of $1 Table Periods 8\% 10 6.71008 20 9.81815 40 11.92461 60 12.37655 Excerpt from Future Value of Ordinary Annuity of $1 Table Periods 8\% 10 14.48656 20 45.76196 40 259.05652 60 1253.21330

You have discovered an investment opportunity that earns a 10% rate of interest compounded annually. What amount should you deposit today to have $10,000 in two years? Use the formula method. (Do not round any intermediary calculations, and round your final answer to the nearest dollar.)