# Excel Applications for Accounting Principles

## Quiz 27 : Time Value of Money Compound Looking for Accounting Homework Help?

## Quiz 27 :Time Value of Money Compound

Question Type  For each exercise, enter the following on the answer sheet: the section of the worksheet used, the amount of the payment(s), the interest rate, the number of periods or payments, the timing of the first payment (if applicable) and the answer. NOTE: All interest rates shown in the exercises are annual rates. Also assume that interest is compounded annually unless indicated otherwise. a. Aida invests $500 in an account today. To what amount will it grow if invested at 10% for five years b. Violetta invests$500 in an account at the beginning of each of the next five years. To what amount will it grow if invested at 10% c. Giovanni promises to pay you $500 in five years if you will loan him some money today. You want to earn 10% interest on all investments. What would you be willing to loan him today d. Zerlina promises to pay you$500 per year at the end of the next five years if you will loan her some money today. You want to earn 10% on all investments. What would you be willing to loan her
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Essay

In each part of the exercise, determine the part of the worksheet used, the amount of the payment, the interest rate, the timing of the first payment, the number of payments, and the final answer. Input the data into the worksheet that has the formulas already entered.
a. If you invest $500 in an account today, what amount will it grow to at 10% interest in five years b. Someone invests$500 in an account at the beginning of every year for five years. If the interest rate is 10%, what amount will it grow to
c. Someone promises to pay $500 in five years if you loan him some money right now. If you want to earn 10% interest, what would you be willing to loan him today d. Someone promises to pay$500 at the end of each year for the next five years if you will loan her some money today. If you want to earn a 10% interest, what would you be willing to loan her now
The answers to each question are seen below: Tags REQUIREMENT For this problem, there are 10 future value and present value exercises to be solved. Review the printout of the worksheet file COMPOUND that follows these requirements. This file also contains a second sheet called the Answer Sheet. Note that the worksheet is divided into four sections. You have to decide which section is appropriate for each exercise.
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Essay

Open and review the worksheet indicated. In this problem you will be using future values and present values to answer questions in an additional section called the answer section. The unedited file will look like this: Tags For each exercise, enter the following on the answer sheet: the section of the worksheet used, the amount of the payment(s), the interest rate, the number of periods or payments, the timing of the first payment (if applicable) and the answer. NOTE: All interest rates shown in the exercises are annual rates. Also assume that interest is compounded annually unless indicated otherwise. a. Carmen invests $500 in an account today. To what will it grow if invested at 10% compounded semiannually for five years b. Same investment compounded quarterly c. Same investment compounded monthly Free Essay Answer: Answer: In each part of the exercise, determine the part of the worksheet used, the amount of the payment, the interest rate, the timing of the first payment, the number of payments, and the final answer. Input the data into the worksheet that has the formulas already entered. a. You invest$500 in an account today. If it has an interest rate of 10% that is compounded semiannually for five years, how much will it grow to
b. You invest $500 in an account today. If it has an interest rate of 10% that is compounded quarterly, how much will it grow to c. You invest$500 in an account today. If it has an interest rate of 10% that is compounded monthly, how much will it grow to
When you have entered the information into the table, your answers should be this: Tags REQUIREMENT Open the file COMPOUND from the website for this book at cengagebrain.com. To enter the four formulas in the appropriate cells, use the FV and PV functions for the annuities (see Appendix A in Excel Quick for a discussion of them). Unfortunately Excel does not provide functions for the future value of an amount nor the present value of an amount. Enter the following formulas for FORMULA1 and FORMULA2: FORMULA1: =B6*((1+B8)^B7) FORMULA2: =E6/((1+E8)^AE7) For the annuity calculations (FV and PV), it is important that you enter a value (or cell reference) for type to indicate the timing of the first payment. If the first payment is made today for an annuity, type must be 0. This is known as an annuity due. If the first payment is made at the end of the first period, type is 1. This is known as an ordinary annuity. Enter your name in cell A1. Save the completed worksheet as COMPOUND2. When you have completed the exercises below, print your formulas. Do not print the worksheet. Check figures: The answer sheet at the end of this section provides answers to the first exercise.
Essay
Tags For each exercise, enter the following on the answer sheet: the section of the worksheet used, the amount of the payment(s), the interest rate, the number of periods or payments, the timing of the first payment (if applicable) and the answer. NOTE: All interest rates shown in the exercises are annual rates. Also assume that interest is compounded annually unless indicated otherwise. a. A bond from Faust Corp. will mature and pay $10,000 in three years. The bond pays no interest (this is often called a zerocoupon bond). The current interest rate for similar bonds is 9%. What price is this bond selling for today b. If the current market rate is 8%, what would the price be c. If the current market rate is 11%, what would the price be Essay Answer: Tags For each exercise, enter the following on the answer sheet: the section of the worksheet used, the amount of the payment(s), the interest rate, the number of periods or payments, the timing of the first payment (if applicable) and the answer. NOTE: All interest rates shown in the exercises are annual rates. Also assume that interest is compounded annually unless indicated otherwise. a. What would Figaro, Inc., be willing to pay for a machine that will produce an annual net cash inflow of$6,800 for seven years Assume Figaro wants to earn 15% on investment in equipment of this type. b. What price would Figaro pay if he only wants to earn 12%
Essay For each exercise, enter the following on the answer sheet: the section of the worksheet used, the amount of the payment(s), the interest rate, the number of periods or payments, the timing of the first payment (if applicable) and the answer. NOTE: All interest rates shown in the exercises are annual rates. Also assume that interest is compounded annually unless indicated otherwise. a. Lucia has signed a four-year lease for $4,200 per year. She wants to set aside enough money today in a separate investment account to pay the rent when due for all four years. Rent is to be paid at the beginning of each year. How much money must she set aside today if the separate account earns 9% per year b. How much does she have to set aside if the rent is paid monthly Assume interest is compounded monthly. Essay Answer: Tags For each exercise, enter the following on the answer sheet: the section of the worksheet used, the amount of the payment(s), the interest rate, the number of periods or payments, the timing of the first payment (if applicable) and the answer. NOTE: All interest rates shown in the exercises are annual rates. Also assume that interest is compounded annually unless indicated otherwise. (back-solve) Rigoletto has$10,000 today to invest for his child's first year of tuition at college. He estimates that it will cost $50,000 when his child enters college in 15 years. What minimum interest rate does he have to earn on his investment (to the nearest tenth of a percent) to have at least$50,000 available b. Rigoletto has instead decided to invest an equal amount of money at the end of each year in a special account earning 10% annual interest. How much does he need to invest annually to have the fund grow to at least $50,000 in 15 years Essay Answer: Tags For each exercise, enter the following on the answer sheet: the section of the worksheet used, the amount of the payment(s), the interest rate, the number of periods or payments, the timing of the first payment (if applicable) and the answer. NOTE: All interest rates shown in the exercises are annual rates. Also assume that interest is compounded annually unless indicated otherwise. Siegfried Opera House has a$1,000,000 lottery. It conducts a drawing when sufficient funds have accumulated. The winner receives $50,000 each year for 20 years. The first check is awarded immediately to the winner. The remaining 19 checks are issued annually. If Siegfried can earn 10% interest on the funds, how much must it have on hand before it can hold a drawing Essay Answer: Tags For each exercise, enter the following on the answer sheet: the section of the worksheet used, the amount of the payment(s), the interest rate, the number of periods or payments, the timing of the first payment (if applicable) and the answer. NOTE: All interest rates shown in the exercises are annual rates. Also assume that interest is compounded annually unless indicated otherwise. Mimi currently lives very nicely on her annual income of$60,000. If inflation averages 3% for the next 30 years, how much annual income will she need to be earning to be equally well off when she retires in 30 years For each exercise, enter the following on the answer sheet: the section of the worksheet used, the amount of the payment(s), the interest rate, the number of periods or payments, the timing of the first payment (if applicable) and the answer. NOTE: All interest rates shown in the exercises are annual rates. Also assume that interest is compounded annually unless indicated otherwise. (back-solve) In payment for land purchased today for $120,000, Tosca Corp. has agreed to make five equal annual payments beginning one year from today. Each payment is to be first applied to the 11% annual interest due and the remainder is applied to the loan balance. What should the annual payment be to retire the debt in five years Essay Answer: Tags For each exercise, enter the following on the answer sheet: the section of the worksheet used, the amount of the payment(s), the interest rate, the number of periods or payments, the timing of the first payment (if applicable) and the answer. NOTE: All interest rates shown in the exercises are annual rates. Also assume that interest is compounded annually unless indicated otherwise. (back-solve) You recently received a$10,000 inheritance from Professor Brünhilde who always said you were her favorite student. There is one minor string attached-you have to invest it and cannot have a penny of it until it builds up to $100,000. Then it is all yours! You immediately invest the$10,000 in a trust fund that guarantees a 7% annual return. How long do you have to wait for your inheritance (to the nearest whole year)