Exam 6: Accounting and the Time Value of Money

What would you pay for an investment that pays you $10,000 at the end of each year for the next ten years and then returns a maturity value of $150,000 after ten years? Assume that the relevant interest rate for this type of investment is 8%.

The present value of an ordinary annuity is the present value of a series of equal rents withdrawn at equal intervals.

What is interest?

Simple interest is computed on principal and on any interest earned that has not been withdrawn.

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?

What interest rate (the nearest percent) must Charlie earn on a $75,000 investment today so that he will have $190,000 after 12 years?

Jane wants to set aside funds to take an around the world cruise in four years.Jane expects that she will need $12,000 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?

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

Jerry recently was offered a position with a major accounting firm.The firm offered Jerry either a signing bonus of $23,000 payable on the first day of work or a signing bonus of $26,000 payable after one year of employment.Assuming that the relevant interest rate is 10%, which option should Jerry choose?

Assume ABC Company deposits $25,000 with First National Bank in an account earning interest at 6% per annum, compounded semi-annually.How much will ABC have in the account after five years if interest is reinvested?

Use the following 8% interest factors for questions . -What will be the balance on September 1, 2018 in a fund which is accumulated by making $8,000 annual deposits each September 1 beginning in 2011, with the last deposit being made on September 1, 2018? The fund pays interest at 8% compounded annually.

Pearson Corporation makes an investment today (January 1, 2012).They will receive $10,000 every December 31st for the next six years (2012 - 2017).If Pearson wants to earn 12% on the investment, what is the most they should invest on January 1, 2012?

Which table would you use to determine how much must be deposited now in order to provide for 5 annual withdrawals at the beginning of each year, starting one year hence?

On January 1, 2012, Haley Co.issued ten-year bonds with a face amount of $4,000,000 and a stated interest rate of 8% payable annually on January 1.The bonds were priced to yield 10%.Present value factors are as follows: The total issue price of the bonds was

How much must be invested now to receive $10,000 for 15 years if the first $10,000 is received today and the rate is 9%?

The future value of a deferred annuity is less than the future value of an annuity not deferred.

The rate used to discount the expected cash flows when using the expected cash flow approach includes an adjustment for credit risk.

An accountant wishes to find the present value of an annuity of $1 payable at the beginning of each period at 10% for eight periods.The accountant has only one present value table which shows the present value of an annuity of $1 payable at the end of each period.To compute the present value, the accountant would use the present value factor in the 10% column for

At the end of two years, what will be the balance in a savings account paying 6% annually if $5,000 is deposited today? The future value of one at 6% for one period is 1.06.

Ethan has $20,000 to invest today at an annual interest rate of 4%.Approximately how many years will it take before the investment grows to $40,500?