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Exam 25: Time Value of Money

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Question 1

Multiple Choice

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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) $\bold{\text{(Use appropriate factor(s) from the tables provided.) }}$

A) $24,331.19
B) $10,153.39
C) $13,586.77
D) $10,000.00
E) $7,586.79

F) None of the above
G) A) and B)

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E

Question 2

True/False

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The present value of $5,000 per year for three years at 12% compounded annually is $12,009.(PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s)from the tables provided.)}}$

A) True
B) False

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Question 3

Essay

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When you reach retirement age,you will have one fund of $100,000 from which you are going to make annual withdrawals of $14,702.The fund will earn 6% per year.For how many years will you be able to draw an even amount of $14,702?

What annual interest rate is required to accumulate $6,802.50 in four years from an investment of $5,000? (PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s)from the tables provided.)}}$ A)5% B)8% C)10% D)12% E)15%

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) $\bold{\text{(Use appropriate factor(s) from the tables provided.) }}$

A company needs to have $200,000 in 4 years,and will create a fund to insure that the $200,000 will be available.If it can earn a 7% return compounded annually,how much must the company invest in the fund today to equal the $200,000 at the end of 4 years?

Explain the concept of the future value of a single amount.

________ is a borrower's payment to the owner of an asset for its use.

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) $\bold{\text{(Use appropriate factor(s) from the tables provided.) }}$

An individual is planning to set-up an education fund for his grandchildren.He plans to invest $10,000 annually at the end of each year.He expects to withdraw money from the fund at the end of 10 years and expects to earn an annual return of 8%.What will be the total value of the fund at the end of 10 years? (PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s) from the tables provided.) }}$

City Peewee League borrowed $883,212,and must make annual year-end payments of $120,000 each.If City's interest rate is 6%,how many years will it take to pay off the loan?

With deposits of $5,000 at the end of each year,you will have accumulated $38,578 at the end of the sixth year if the annual rate of interest is 10%.(PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s)from the tables provided.)}}$

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) $\bold{\text{(Use appropriate factor(s) from the tables provided.) }}$

Keisha has $3,500 now and plans on investing it in a fund that will pay her 12% interest compounded quarterly.How much will Keisha have accumulated after 2 years? (PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s) from the tables provided.) }}$

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) $\bold{\text{(Use appropriate factor(s) from the tables provided.) }}$

At an annual interest rate of 8% compounded annually,$5,300 will accumulate to a total of $7,210.65 in 5 years.(PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s)from the tables provided.)}}$

Kelsey has a loan that requires a $25,000 lump sum payment at the end of three years.The interest rate on the loan is 5%,compounded annually.How much did Kelsey borrow today?

An individual is planning to set-up an education fund for her daughter.She plans to invest $7,000 annually at the end of each year.She expects to withdraw money from the fund at the end of 9 years and expects to earn an annual return of 8%.What will be the total value of the fund at the end of 9 years? (PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s) from the tables provided.) }}$

A company expects to invest $5,000 today at 12% annual interest and plans to receive $15,529 at the end of the investment period.How many years will elapse before the company accumulates the $15,529? (PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s)from the tables provided.)}}$ A)0.322 years B)3.1058 years C)5 years D)8 years E)10 years

The present value of $2,000 to be received nine years from today at 8% interest compounded annually is $1,000.40.(PV of $1,FV of $1,PVA of $1,and FVA of $1) $\bold{\text{(Use appropriate factor(s)from the tables provided.)}}$