Exam 6: Accounting and the Time Value of Money

The future value of an ordinary annuity table is used when payments are invested at the beginning of each period.

If a savings account pays interest at 4% compounded quarterly, then the amount of €1 left on deposit for 6 years would be found in a table using

At the date of issue, bond buyers determine the present value of the bonds' cash flows using the market interest rate.

What is the primary difference between an ordinary annuity and an annuity due?

Jonas won a lottery that will pay him £125,000 at the end of each of the next twenty years. Zebra Finance has offered to purchase the payment stream for £1,699,000. What interest rate (to the nearest percent) was used to determine the amount of the payment?

On January 15, 2018, Dolan Corp. adopted a plan to accumulate funds for environmental improvements beginning July 1, 2022, at an estimated cost of £8,000,000. Dolan plans to make four equal annual deposits in a fund that will earn interest at 10% compounded annually. The first deposit was made on July 1, 2018. Future value factors are as follows:

If an individual put £4,000 in a savings account today, what amount of cash would be available two years from today?

Bella requires €120,000 in four years to purchase a new home. What amount must be invested today in an investment that earns 6% interest, compounded annually?

Jane wants to set aside funds to take an around the world cruise in four years. Jane expects that she will need £15,000 for her dream vacation. If she is able to earn 8% per annum on an investment, how much will she need to set aside at the beginning of each year to accumulate sufficient funds?

Ziggy is considering purchasing a new car. The cash purchase price for the car is €35,000. What is the annual interest rate if Ziggy is required to make annual payments of €8,100 at the end of the next five years?

How much must be deposited on January 1, 2018 in a savings account paying 6% annually in order to make annual withdrawals of €25,000 at the end of the years 2018 and 2019? The present value of one at 6% for one period is .9434.

Barber Company will receive €1,000,000 in 7 years. If the appropriate interest rate is 10%, the present value of the €1,000,000 receipt is

On December 30, 2019, AGH, Inc. purchased a machine from Grant Corp. in exchange for a zero-interest-bearing note requiring eight payments of €75,000. The first payment was made on December 30, 2019, and the others are due annually on December 30. At date of issuance, the prevailing rate of interest for this type of note was 11%. Present value factors are as follows:

Which factor would be greater - the present value of €1 for 10 periods at 8% per period or the future value of €1 for 10 periods at 8% per period?

Jeremy is in the process of purchasing a car. The list price of the car is €36,000. If Jeremy pays cash for the car, the dealer will reduce the price by 10%. Otherwise, the dealer will provide financing where Jeremy must pay €7,705 at the end of each of the next five years. Compute the effective interest rate to the nearest percent that Jeremy would pay if he chooses to make the five annual payments?

The time value of money refers to the fact that a dollar received today is worth less than a dollar promised at some time in the future.

Jane wants to set aside funds to take an around the world cruise in four years. Jane expects that she will need €15,000 for her dream vacation. If she is able to earn 8% per annum on an investment, how much will she have to set aside today so that she will have sufficient funds available?

Charlie Corp. is purchasing new equipment with a cash cost of €150,000 for an assembly line. The manufacturer has offered to accept €34,440 payment at the end of each of the next six years. How much interest will Charlie Corp. pay over the term of the loan?

If an annuity due and an ordinary annuity have the same number of equal payments and the same interest rates, then

Interest is the excess cash received or repaid over and above the amount lent or borrowed.