Question 1

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

Accepted Answer

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Question 2

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

Accepted Answer

Present Value = Future Value * Interest Factor
Present Value = $25,000 * 0.8638 = $21,595
0.8638 is the interest factor on the Present Value table; n = 3; i = 5%

Question 3

Chad is setting up a retirement fund,and he plans on depositing $5,000 per year in an investment that will pay 7% annual interest.How long will it take him to reach his retirement goal of $69,080?
A) 13.816 years
B) 0.072 years
C) 10 years
D) 20 years
E) 5 years

Accepted Answer

$69,080/$5,000 = 13.816. This is the factor for the future value of an annuity of 1, 7%, 10 periods

Question 4

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

Accepted Answer

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Question 5

What amount can you borrow if you make six quarterly payments of $4,000 at a 12 % annual rate of interest?
A) $24,838.00
B) $21,668.80
C) $31,049.00
D) $40,000.00
E) $44,800,00

Accepted Answer

$4,000 x 5.4172 = $21,668.80

Question 6

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 two years?
A) $4,433.80
B) $4,340.00
C) $4,390.40
D) $3,920.00
E) $3,500.00

Accepted Answer

$3,500 x 1.2668 = $4,433.80

Question 7

Thompson Company has acquired a machine from a dealer which requires a payment of $45,000 at the end of five years.This transaction includes interest at 8%,compounded semiannually.What is the value of the machine today?

Accepted Answer

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Question 8

How long will it take an investment of $25,000 at 6% compounded annually to accumulate to a total of $35,462.50?
A)4 years
B)5 years
C)6 years
D)2 years
E)10 years

Accepted Answer

$35,462.50/$25,000 = 1.4185, the future value of 1 at 6% for six periods

Question 9

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

Accepted Answer

The answer of A company needs to have $200,000 in...

Question 10

Jon Shear 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?
A) Five payments
B) Six payments
C) Four payments
D) Three payments
E) More than six payments

Accepted Answer

$25,000/$6,595 = 3.7908, the present value of an annuity of 1 factor at 10% for five periods

Question 11

A company is considering an investment that will return $20,000 at the end of each semiannual period for four years.If the company requires an annual return of 10%,what is the maximum amount it is willing to pay for this investment?
A) Not more than $63,398
B) Not more than $126,796
C) Not more than $80,000
D) Not more than $129,264
E) Not more than $160,000

Accepted Answer

$20,000 x 6.4632 = $129,264

Question 12

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?
A) 0.322 years
B) 3.1058 years
C) 5 years
D) 8 years
E) 10 years

Accepted Answer

$15,529/$5,000 = 3.1058
Future value of 1 at 3.1058 is 12%, 10 periods
Alternatively: $5,000/$15,529 = 0.3220
Present value of 1 at 0.3220 is 12%, 10 periods

Question 13

Explain the concept of the future value of an annuity.

Accepted Answer

The answer of Explain the concept of the future value...

Question 14

An individual is planning to set-up an education fund for her children.She plans to invest $10,000 annually at the end of each year.She 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?
A) $ 46,320
B) $ 67,107
C) $100,000
D) $144,870
E) $215,890

Accepted Answer

$10,000 x 14.487 = $144,870

Question 15

Crowe Company has acquired a building with a loan that requires payments of $20,000 every six months for five years.The annual interest rate on the loan is 12%.What is the present value of the building?
A) $72,096
B) $113,004
C) $147,202
D) $86,590
E) $200,000

Accepted Answer

$20,000 x 7.3601 = $147,202

Question 16

What interest rate is required to accumulate $6,802.50 in four years from an investment of $5,000?
A) 5%
B) 8%
C) 10%
D) 12%
E) 15%

Accepted Answer

$6802.50/$5,000 = 1.3605, the future value of 1 factor at 8% for four periods

Question 17

Explain the concept of the present value of an annuity.

Accepted Answer

The answer of Explain the concept of the present value...

Question 18

Sam has a loan that requires a single payment of $4,000 at the end of three years.The loan's interest rate is 6%,compounded semiannually.How much did Sam borrow?
A) $3,358.40
B) $4,000.00
C) $3,660.40
D) $4,776.40
E) $3,350.00

Accepted Answer

$4,000 x 0.8375 = $3,350.00

Question 19

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

Accepted Answer

The answer of Explain the concept of the future value...

Question 20

What is interest?

Accepted Answer

The answer of What is interest?...

Quiz 26: Time Value of Money

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

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

Chad is setting up a retirement fund,and he plans on depositing $5,000 per year in an investment that will pay 7% annual interest.How long will it take him to reach his retirement goal of $69,080?

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

What amount can you borrow if you make six quarterly payments of $4,000 at a 12 % annual rate of interest?

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 two years?

Thompson Company has acquired a machine from a dealer which requires a payment of $45,000 at the end of five years.This transaction includes interest at 8%,compounded semiannually.What is the value of the machine today?

How long will it take an investment of $25,000 at 6% compounded annually to accumulate to a total of $35,462.50?

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

Jon Shear 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?

A company is considering an investment that will return $20,000 at the end of each semiannual period for four years.If the company requires an annual return of 10%,what is the maximum amount it is willing to pay for this investment?

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?

Explain the concept of the future value of an annuity.

Crowe Company has acquired a building with a loan that requires payments of $20,000 every six months for five years.The annual interest rate on the loan is 12%.What is the present value of the building?

What interest rate is required to accumulate $6,802.50 in four years from an investment of $5,000?

Explain the concept of the present value of an annuity.

Sam has a loan that requires a single payment of $4,000 at the end of three years.The loan's interest rate is 6%,compounded semiannually.How much did Sam borrow?

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

What is interest?