Exam 14: Time Value of Money

Present and future value computations enable companies to measure or estimate the interest component of holding assets or liabilities over time.

Chris wants to accumulate $100,000 in 5 years.He plans on making equal semiannual deposits into an investment account that earns 12% semiannually in order to reach his goal.How much must Chris invest every six months? (PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)

Sandra has a savings account that has accumulated to $50,000.She started with $28,225,and earned interest at 10% compounded annually.It took her five years to accumulate the $50,000.(PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)

Clara is setting up a retirement fund,and she plans on depositing $5,000 per year in an investment that will pay 7% annual interest.How long will it take her to reach her retirement goal of $69,082? (PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)

Pelcher Company acquires a machine by issuing a note that requires semiannual payments of $4,000 for 3 years.The interest rate on the note is 10% compounded semiannually.What is the cost of the machine? (PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)

Cody invests $1,800 per year from his summer wages at a 4% annual interest rate.He plans to take a European vacation at the end of 4 years when he graduates from college.How much will he have available to spend on his vacation? (PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)

A company has $46,000 today to invest in a fund that will earn 4% compounded annually.How much will the fund contain at the end of 6 years?

A company has $50,000 today to invest in a fund that will earn 7%.How much will the fund contain at the end of 8 years?

In a present value or future value table,the length of one time period may be interpreted as one year,one month,or any other length of time.

Garcia Brass Fixtures is planning on replacing one of its machines in five years by making a one-time deposit of $20,000 today and four yearly contributions of $5,000 beginning at the end of year 1.The deposits will earn 10% interest.How much money will Garcia have accumulated at the end of five years to replace the machine?

The number of periods in a present value calculation may only be expressed in years.

A company is beginning a savings plan.It will be saving $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?

The future value of an ordinary annuity is the accumulated value of each annuity payment excluding interest as of the date of the final payment.

Jessica received a gift of $7,500 at the time of her high school graduation.She invests it in an account that yields 10% compounded semiannually.What will the value of Jessica's investment be at the end of 5 years? (PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)

Marc Lewis 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? (PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)

A company has $46,000 today to invest in a fund that will earn 4% compounded annually.How much will the fund contain at the end of 6 years? (PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)

A company is considering investing in a project that is expected to return $350,000 four years from now.How much is the company willing to pay for this investment if the company requires a 12% return? (PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)

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

A company is creating a fund today by depositing $65,763.The fund will grow to $90,000 after 8 years.What annual interest rate is the company earning on the fund?

Marshall has received an inheritance and wants to invest a sum of money today that will yield $5,000 at the end of each of the next 10 years.Assuming he can earn an interest rate of 5% compounded annually,how much of his inheritance must he invest today? (PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)