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Exam 23: Understanding Time Value of Money Formulas and Concepts

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Question 61

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Currently in August, 2017) , Abby wants to have $20,000 available in August 2021 to make a college tuition payment. To be able to have this amount available, Abby will make equal annual deposits in an investment account earning 12% annually in August 2017,2018,2019,2020,and 2021. What is the annual amount to be deposited?

A) $5,548
B) $4,000
C) $3,148
D) $2,270

E) A) and B)
F) A) and C)

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Question 62

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Table factors for present values

A) decrease as the interest rate decreases
B) decrease as the number of periods increases
C) increase as the interest rate increases
D) increase as the number of periods increases

E) A) and B)
F) A) and C)

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Question 63

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The formula to calculate a present value of a deferred annuity is: PVdeferred = C × Converted Factor for Present Value of Deferred Annuity of 1)

One type of compensation provided by the time value of money is compensation for risk.

The future value of an annuity due is lower if the discount rate is higher.

All of the following are conditions for an ordinary annuity except

David Company borrowed $550,000 on December 31, 2014. The loan will be paid with six equal annual payments of $115,388, beginning on December 31, 2015. The rate of interest compounded annually for the loan is most nearly equal to

Georgia deposits $4,000 every three months for five years. The first deposit is made on March 31, 2016, and the last deposit is made on December 31, 2020. The fund earns 16% and interest is compounded quarterly. How much money will Georgia have on December 31, 2020, immediately after her last deposit? Factors for future value of an annuity of $1 are

Using the table approach, the future amount of an annuity due may be calculated by finding the table factor for the future amount of an ordinary annuity of

Using the compound interest tables, answer the following questions. Required: a. What amount of interest will be earned on an investment of $10,500 left on deposit by Marcy for three years at 9% interest compounded annually? b. Travis deposited $10,000 in a fund that earns 8% interest compounded annually. How many years will it take for the fund to grow to $21,589.25?

To compare the value of amounts received at different times in the future, dollar amounts

The present value of an annuity due is determined on the date of the last cash flow in the series.

Bruno deposited $7,500 into an investment account and seven years later, the balance in the account was $10,910. What is the rate of return on this investment if interest is compounded annually?

Rita deposited $8,000 in a savings account that provides for interest at the rate of 16% compounded quarterly. Required: Compute the balance in the account at the end of seven years.

The future value of an annuity due is determined one period after the first cash flow in the series.

Marco needs $175,000 six years from today. How much should Marco deposit today into an investment account that provides a 12% annual return in order to accomplish his goals?

Jessie's Dry Cleaner began making $2,000 equal, annual deposits in a fund starting on January 2, 2016. The fund earns 10% compounded annually, and the last deposit is made on January 2, 2020. How much will be in the fund on January 2, 2021, one year after the final deposit?

The formula to compute the present value of a dollar is $P V = F V \times \frac { 1 } { ( 1 + i ) ^ { n } }$

What is the formula for the present value of an ordinary annuity of 1?

Using the compound interest tables, answer each of the following questions. Required: a. Assuming that $100,000 to be paid at the end of ten years has a present value today of $50,834.90, what interest rate compounded annually is used in the calculation of the present value? b. What amount must be deposited today if $200,000 is to be accumulated six years from today, and interest at 12% is compounded semiannually?