Exam 14: Time Value of Money

You have received a settlement offer from an automobile manufacturer due to mechanical problems with your automobile.The manufacturer will pay you $49,000 in one lump sum five years from now.You can earn 6% on your investments.The present value of $1 for 5 periods at 6% is 0.747.The present value of an ordinary annuity of $1 for 5 periods at 6% is 4.212.The present value of the manufacturer's settlement offer is closest to:

The process of determining the present value of a sum of money is called discounting because the present value of a sum of money is more than the future value of a sum of money.

To calculate the future value of an investment,you need ________ inputs.

Ordinary annuity investments provide multiple receipts of an unequal amount at fixed year-end intervals over the investment's duration.

The difference between the future value of an investment and the original investment is the amount of interest revenue that will be earned.

A single amount of $6,400 is to be received in 4 years.If the single amount is discounted at 8% for 4 periods,the present value is ________.The present value of $1 for 4 periods at 8% is 0.735.The present value of an ordinary annuity of $1 for 4 periods at 8% is 3.312.(Round your final answer to the nearest dollar. )

Most businesses ignore compound interest when calculating interest on debt or investments.

You have won $1,250,000 in a lottery.Your winnings will be paid to you in equal annual year-end installments of $250,000 over 5 years.You estimate that you can earn 4% on your investments.The present value of $1 for 5 periods at 4% is 0.822.The present value of an ordinary annuity of $1 for 5 periods at 4% is 4.452.The present value of your $1,250,000 winnings would be closest to:

Compound interest is only the interest you earn on your principal amount.

Whether making investments or borrowing money,we don't need to recognize the interest we receive or pay.

Cooper Company has purchased equipment that requires annual payments of $18,000 to be paid at the end of each of the next 6 years.The discount rate is 8%.The present value of $1 for six periods at 8% is 0.630.The present value of an ordinary annuity of $1 for six periods at 8% is 4.623.What amount will be assigned to the equipment at the purchase date? (Round your final answer to the nearest dollar. )

Interest is the cost of using money.

On January 1,2019,bonds with a face value of $94,000 were sold.The bonds mature on January 1,2029.The face interest rate is 8% annually.The bonds pay interest semiannually on July 1 and January 1.The market rate of interest is 10% annually.What is the market price of the bonds on January 1,2019? The present value of $1 for 20 periods at 5% is 0.377.The present value of an ordinary annuity of $1 for 20 periods at 5% is 12.462.The present value of $1 for 10 periods at 10% is 0.463.The present value of an ordinary annuity of $1 for 10 periods at 10% is 6.145.(Round your final answer to the nearest dollar. )

When the market interest rate is equal to the face interest rate on bonds,the present value of the bonds will be less than the bond's face value at the date of sale of the bonds.

The present value of a bond-its market price-is the present value of the future principal amount at maturity plus the present value of the future stated interest payments.

The time value of money plays a key role in measuring the value of certain long-term investments as well as long-term debt.

Interest,the cost of using money,is recorded as interest revenue by the borrower.

Most business decision makers solve present-value problems with Excel because the present-value tables are limited to the interest rates in the columns and the number of periods in the rows.

Which of the following discount rates will produce the smallest present value of a single sum of money?

You have won $4,400,000 in a lottery.Your winnings will be paid to you in equal annual year-end installments of $440,000 over 10 years.You estimate that you can earn 6% on your investments.The present value of $1 for 10 periods at 6% is 0.558.The present value of an ordinary annuity of $1 for 10 periods at 6% is 7.36.The present value of your $4,400,000 winnings would be closest to: