Exam 14: Time Value of Money

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?

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

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

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.

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?

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

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?

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?

Explain the concept of the present value of an annuity.

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%.

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.

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

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 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?

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?

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

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%?