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Exam 26: Time Value of Money

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Question 31

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A company borrows money from the bank by promising to make six annual year-end payments of $25,000 each.How much is the company able to borrow if the interest rate is 9%?

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$25,000 x ...

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Question 32

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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

F) All of the above
G) B) and E)

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Question 33

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The present value of 1 formula is often useful when a borrowed asset must be repaid in full at a later date and the borrower wants to know its worth at the future date.

Explain the concept of the future value of an annuity.

The future value of $100 compounded semiannually for three years at 12% equals $140.49.

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

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?

An _____________ is a series of equal payments occurring at equal intervals.

Interest is:

A company borrows money from the bank by promising to make eight semiannual payments of $9,000 each.How much is the company able to borrow if the interest rate is 10% compounded semiannually?

A company is setting up a sinking fund to pay off $8,654,000 in bonds that are due in seven years.The fund will earn 7% interest,and the company intends to put away a series of equal year-end amounts for seven years.What amount must the company deposit annually?

Sandra has a savings account that is now $50,000.She started with $28,225 and earned interest at 10% compounded annually.It took five years to accumulate the $50,000.

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?

What is interest?

Daley Co.lends $524,210 to Davis Corporation.The terms of the loan require that Davis repay the loan with six semiannual period-end payments of $100,000 each.What semiannual interest rate is Davis paying on the loan?

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

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?