Exam 23: Understanding Time Value of Money Formulas and Concepts

Compound interest factors are provided below: 5\%,n=10 5\%,n=20 10\%,n=10 10\%,n=20 Future value of a single sum 1.629 2.653 2.594 6.728 Future value of an ordinary annuity 12.578 33.067 15.937 57.275 Present value of a single sum 0.614 0.377 0.386 0.149 Present value of an ordinary annuity 7.722 12.462 6.145 8.514 Present value of an annuity due 8.108 13.085 6.759 9.365 Using the above factors, answer each of the following questions. a. How much will you have in 10 years if you invest $30,000 in an investment that earns 10% semiannually? b. How much do you have to invest today to have $30,000 in 10 years if the investment earns 10% annually? c. How much will you have in 10 ysears if you invest $15,000 at the end of each year in an investment earning 10% annually? d. How much do you have to invest today and every six months thereafter for the next 10 years if you want to accumulate a total of $400,000 10 years from today in an investment paying 10% semiannually?

For which of the following transactions would the present value of an annuity due concept be most appropriate for calculating the present value of the asset acquired or liability assumed?

The present value of an amount decreases as the discount rate increases.

Aunt Darla has agreed to deposit a lump sum into an account that pays 12% interest compounded annually in order to education. The niece estimated that she will need to withdraw $40,000 at the beginning of each year for four years to and books. Aunt Darla will deposit the lump sum on August 1, 2016, and the niece will make the first withdrawal on A Required: Determine the amount that Aunt Darla must deposit. Clearly label all work.

Charlie's Construction Co. acquired a new $800,000 backhoe on April 1, 2014. Charlie's will make six annual payments based upon 8% interest compounded annually, starting on March 31, 2015. How much will each payment be?

All of the following are conditions for an annuity due except

Using the compound interest tables, answer the following questions. Required: a. How much will be accumulated on January 1, 2018 if $450,000 is deposited on January 1, 2014, and interest is compounded annually at 10%? b. How much will be accumulated on December 31, 2024 if $80,000 is deposited on December 31, 2014, and the fund pays 9% interest compounded semiannually? c. What will be on deposit on January 1, 2019 if $50,000 is deposited on January 1, 2014, in a fund that earns 16% interest compounded quarterly?

What are the five steps that can be applied to all of the time value of money techniques to assist in calculations?

FASB financial accounting concepts on using estimated future cash flow information in accounting measurements to value various assets and liabilities identified each of the following elements except

Compound interest is

Bunsen Company is involved in a consumer liability lawsuit. Company attorneys have assessed the contingent outcomes of the lawsuit. Because the attorneys think the company will probably lose the lawsuit, To prepare for this loss, Bunsen management has decided to set aside funds in an investment account that earns a 9% return rate. Furthermore, there is general agreement that there is a 60% probability the company will have to pay the defendants $6 million four years from now; a 30% probability the company will need to pay $10 million eight years from now, and a 10% probability the company will pay nothing. What amount should Bunsen accrue as a contingent liability?

Match the diagrams with the concepts by writing the identifying letter of the diagram on the blank line to the left of the concept. "VAL" represents the value to be calculated. Concept ___ 1. Future value of $1 ___ 2. Present value of $1 ___ 3. Future value of an annuity due of $1 ___ 4. Future value of an ordinary annuity of $1 ___ 5. Present value of an ordinary annuity of $1 ___ 6. Present value of an annuity due of $1

At the beginning of 2017, Lisa Co. issued bonds with a face value of $700,000 due on December 31, 2023. The company desires to accumulate a fund to retire these bonds at maturity by making equal annual deposits beginning on December 31, 2017. Required: Compute the amount that the company must deposit at the end of each year, assuming that the fund will earn 10% interest a year compounded annually and seven deposits are made.

Suppose you borrow money from your parents for college tuition on January 1, 2013. Your parents require four annual payments of $1,000 each, with the first payment due on January 1, 2017. They are charging you 6% annual interest. What is the cost of the college tuition?

Maxine has $1,000 to invest today. How much will her money be worth in 15 years if she earns 9% compounded semiannually on her money?

The FASB Statement of Financial Accounting Concepts No. 7 describes five elements that together may be used to determine the value of various assets and liabilities, what are these five elements?

The present value of $500,000 received at the end of five years discounted at 10% is

On January 1, 2016, Bob's Meat Market leased some equipment from another company. The lease contract calls for $12,000 annual payments for eight years, beginning on December 31, 2016. Required: Calculate the present value of the lease payments on January 1, 2016. Assume a 6% interest rate.

Using the future value tables to answer the following questions. Required: 1) What is the value on January 1, 2023, of $75,000 deposited on January 1, 2016, which accumulates interest at 14% annually? 2) What is the value on January 1, 2021, of $15,000 deposited on July 1, 2016, which accumulates interest at 16% compounded quarterly? 3) What is the compound interest on an investment of $10,000 left on deposit for 7 years at 8% compounded annually?

What estimations are involved in present value measurements?