Exam 23: Understanding Time Value of Money Formulas and Concepts

To determine the converted table factor for the present value of an annuity due, one must find the factor for the present value of an ordinary annuity for

What is the formula for the future value of a single amount at compound interest?

What is the formula to compute the future value of a single sum?

The future value of an ordinary annuity is determined immediately after the last cash flow in the series occurs.

Norah has $2,000,000 in her retirement account. She wants to make 20 equal withdrawals, beginning today and each year thereafter. The investment plan earns 8%. What is the amount of annual withdrawals that would completely deplete the fund after the 20th withdrawal?

You would like to deposit a sum of money today that would enable you to withdraw $2,000 a year for ten years. If the interest paid on the amount deposited is 10% compounded annually and if the first withdrawal is made one year from today, the formula you would use to determine the amount of the initial deposit is the

What is the formula for the present value of an annuity due?

Using the compound interest tables, answer each of the following questions. Required: a. What is the present value on January 1, 2014, of $50,000 due on January 1, 2020, and discounted at 7% compounded annually? b. What is the present value on January 1, 2014, of $8,000 due on January 1, 2022, and discounted at 10% compounded semiannually?

On April 1, 2016, Meyers Company purchased a bulldozer. Payment, totaling $70,000, is not due until April 1, 2018. Assuming interest at a 12% annual rate, Meyers should debit Machinery on April 1, 2016, in the amount of

Jackie's parents loaned her $80,000 to fund her college education. Her parents are not charging interest. They desire to be paid one lump sum of $80,000 when Jackie can accumulate that amount. Jackie established a savings plan that earns 8% compounded annually. Her new job promises to pay an annual holiday bonus that will enable her to make equal annual, year-end deposits of $6,400. Approximately how many years will it take Jackie to accumulate the $80,000?

Savannah has just won the state lottery. She will receive ten equal annual payments of $15,000, beginning one year from today. Assuming an 8% interest rate compounded annually, the present value of those receipts today is

The present value of a deferred annuity is determined on today's date, because the annuity payments begin some period after today's date.

Samuel just inherited an annuity. He will receive six equal annual payments of $18,000, beginning today. Assuming a 10% interest rate compounded annually, the present value today of all receipts is

A local CPA has told you "Just give me a table of the factors for the Present Value of $1 and I can easily create all those other tables in an Excel spreadsheet." Explain how this would be done.

An annuity is the same amount at the same time every period

What is the formula to compute the present value of a single sum?

One type of compensation provided by the time value of money is compensation for expected consumption.

To calculate the present value of an annuity due the formula is: $P V _ { D } = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n + 1 } } } { i } + 1 \right]$

Using the present value tables, solve the following problems. Required: 1) What is the present value of a $100,000 loan issued on January 1, 2016, due on January 1, 2021, discounted at 14% compounded annually? 2) What is the present value of a $100,000 loan issued on January 1, 2016, due on July 1, 2021 discounted at 16% compounded quarterly? 3) What is the amount of the present value discount on $25,000 due at the end of seven years at 9% compounded annually?

The present value of a future amount depends on two variables: the interest rate and the number of periods.