Question 1

Gwen and Steve Jones Jeter invested $10,000 in a savings account paying 4% annual interest when their daughter, Larrisa was born. They also deposited $5,000 on each of her birthdays until she was 18 (including her 18th birthday). How much was in the savings account on her 18th birthday (after the last deposit)?

Accepted Answer

The answer of Gwen and Steve Jones Jeter invested $10,000...

Question 2

Patterson Company is about to issue $8,000,000 of 10-year bonds paying an 8% interest rate with interest payable semiannually. The discount rate for such securities is 10%. Below are time value of money factors that Patterson uses to calculate compounded interest.  To the closest dollar, how much can Patterson expect to receive for the sale of these bonds?

Accepted Answer

The answer of Patterson Company is about to issue $8,000,000...

Question 3

Rhode Company is about to issue $4,000,000 of 5-year bonds, with a contract rate of interest of 8%, payable semiannually. The discount rate for such securities is 10%. How much can Rhode expect to receive from the sale of these bonds?

Accepted Answer

The bonds are issued at a discount because the contract rate (8%) is lower than the market rate (10%). The present value of the bond's cash flows (interest and principal) at the market rate will determine the amount received, which is $3,691,117.

Question 4

Hale Corporation issues an 8%, 9-year mortgage note on January 1 2014, to obtain financing for new equipment. The terms provide for semiannual installment payments of $32,900. The following values related to the time value of money were available to Hale to help them with their planning process and compounded interest decisions. $\begin{array}{ll}
\text { Present value of } 1 \text { for } 9 \text { periods at } 8 \% & 0.50025 \
\text { Present value of } 1 \text { for } 18 \text { periods at } 4 \% & 0.49363 \
\text { Future value of } 1 \text { for } 9 \text { periods at } 8 \% & 1.99900 \
\text { Future value of } 1 \text { for } 18 \text { periods at } 4 \% & 2.02582 \
\text { Present value of an annuity of } 1 \text { for } 9 \text { periods at } 8 \% & 6.24689\
\text { Present value of an annuity of } 1 \text { for } 18 \text { periods at } 4 \% & 12.65930 \
\text { Future value of an annuity of } 1 \text { for } 9 \text { periods at } 8 \% & 12.48756 \
\text { Future value of an annuity of } 1 \text { for } 18 \text { periods at } 4 \% & 25.64541
\end{array}$ To the closest dollar, what were the cash proceeds received from the issuance of the note?

Accepted Answer

The answer of Hale Corporation issues an 8%, 9-year mortgage...

Question 5

If Claude Summers invests $14,962.50 now, she will receive $50,000 at the end of 14 years. What annual rate of return will Claude earn on his investment?

Accepted Answer

The answer of If Claude Summers invests $14,962.50 now, she...

Question 6

Lewis Company earns 12% on an investment that will return $500,000 eleven years from now. What is the amount that Lewis Company should invest now to earn this rate of return?

Accepted Answer

The answer of Lewis Company earns 12% on an investment...

Question 7

If a bond has a contract rate of 10% and is discounted at 10%, then the proceeds received at issuance will be

Accepted Answer

When a bond's contract rate (coupon rate) is equal to the discount rate (market rate), the bond is issued at par, meaning the proceeds received at issuance will be equal to the face value of the bonds.

Question 8

Sauls Company is considering an investment that will return a lump sum of $1,250,000 six years from now. What amount should Sauls Company pay for this investment to earn a 12% return?

Accepted Answer

The answer of Sauls Company is considering an investment that...

Question 9

Sebastian Hale owns a garage and is contemplating purchasing a tire retreading machine for $18,150. After estimating costs and revenues, Sebastian projects a net cash flow from the retreading machine of $3,300 annually for 8 years. Sebastian hopes to earn a return of 10 percent on such investments. What is the present value of the retreading operation? Should Sebastian purchase the retreading machine?

Accepted Answer

The answer of Sebastian Hale owns a garage and is...

Question 10

(a)What is the present value of $32,000 due 7 years from now, discounted at 8%?
(b) What is the present value of $70,000 due 5 years from now, discounted at 15%?

Accepted Answer

The answer of (a)What is the present value of $32,000...

Question 11

David Jones deposited $6,500 in an account paying interest of 5% compounded annually. What amount would be in the account at the end of 4 years?

Accepted Answer

The answer of David Jones deposited $6,500 in an account...

Question 12

Balentyne Company borrowed $95,000 on January 2, 2014. This amount plus accrued interest of 5% compounded annually will be repaid at the end of 3 years. What amount will Balentyne repay at the end of the third year?

Accepted Answer

The answer of Balentyne Company borrowed $95,000 on January 2,...

Question 13

Fischer Company has decided to begin accumulating a fund for plant expansion. The company deposited $20,000 in a fund on January 2, 2012. Fischer will also deposit $60,000 annually at the end of each year, starting in 2012. The fund pays interest at 5% compounded annually. What is the balance of the fund at the end of 2016 (after the 2016 deposit)?

Accepted Answer

The answer of Fischer Company has decided to begin accumulating...

Question 14

When determining the proceeds received when issuing a bond, the factor applied to the amount of the interest payments is determined from the table of the

Accepted Answer

The proceeds from issuing a bond are calculated using the present value of an annuity of 1 because interest payments are made periodically and are considered an annuity.

Question 15

Wando Company is considering investing in an annuity contract that will return $55,000 annually at the end of each year for 20 years. What amount should Wando Company pay for this investment if it earns a 6% return?

Accepted Answer

The answer of Wando Company is considering investing in an...

Question 16

Winek Company deposited $12,500 annually for 6 years in an account paying 5% interest compounded annually. What is the balance of the account at the end of the 6th year?

Accepted Answer

The answer of Winek Company deposited $12,500 annually for 6...

Question 17

Chenard Company is about to issue $3,000,000 of 8-year bonds paying a 12% interest rate with interest payable semiannually. The discount rate for such securities is 10%. Below are time value of money factors that Chenard uses to calculate compounded interest. $$\begin{array} { | l | c | c | r | r | } 
\hline & \begin{array} { c } 
8 \text { periods, } \
10 \%
\end{array} & \begin{array} { c } 
16 \text { periods, } \
5 \%
\end{array} & \begin{array} { c } 
8 \text { periods, } \
12 \%
\end{array} & \begin{array} { c } 
16 \text { periods, } \
6 \%
\end{array} \
\hline \text { Present value 1 } & 0.46651 & 0.45811 & 0.40388 & 0.39365 \
\hline \text { Future value 1 } & 2.14359 & 2.18287 & 2.47596 & 2.54035 \
\hline \text { Present value of an annuity of 1 } & 5.33493 & 10.83777 & 4.96764 & 10.10590 \
\hline \text { Future value of an annuity of 1 } & 11.43589 & 23.65749 & 12.29969 & 25.67253 \
\hline
\end{array}$$ To the closest dollar, how much can Chenard expect to receive for the sale of these bonds?

Accepted Answer

The present value of the bond's face value and the present value of the interest payments are calculated using the discount rate of 10% (5% per period for 16 periods). The present value of the face value is $3,000,000 * 0.45811 = $1,374,330. The present value of the annuity of interest payments is $180,000 * 10.83777 = $1,950,800. The total is $1,374,330 + $1,950,800 = $3,325,130.

Question 18

Kenny Corsig purchased an investment for $9,818.15. From this investment, he will receive $1,000 annually for the next 20 years starting one year from now. What rate of interest will Kenny be earning on his investment?

Accepted Answer

The answer of Kenny Corsig purchased an investment for $9,818.15....

Question 19

Toub Company issued $4,000,000, 10-year bonds and agreed to make annual deposits of $303,500 to a fund. The deposits are made at the end of each year to a fund paying 6% interest compounded annually. What amount will be in the fund at the end of the 10 years?

Accepted Answer

The answer of Toub Company issued $4,000,000, 10-year bonds and...

Question 20

The _____________________ of an annuity is the sum of all the payments plus the accumulated compound interest on them.

Accepted Answer

The answer of The _____________________ of an annuity is the...

Quiz 14: Understanding Investments and Acquisitions in Accounting