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Exam 26: Present and Future Values in Accounting

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Question 41

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The future value of an ordinary annuity is the accumulated value of each annuity payment excluding interest as of the date of the final payment.

A) True
B) False

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Question 42

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

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Question 43

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To calculate present value of an amount, two factors are required: The ________ and the________.

The present value of four $10,000 semiannual payments invested for 2 years at 12% compounded semiannually is $43,746. (^{PV of $1}, ^{FV of $1}, ^{PVA of $1}, and ^{FVA of $1}) (Use appropriate factor(s) from the tables provided.)

What amount can you borrow if you make seven semiannual payments of $4,000 at an 8% annual rate of interest? (^{PV of $1}, ^{FV of $1}, ^{PVA of $1}, and ^{FVA of $1}) (Use appropriate factor(s) from the tables provided.)

Define interest.

An individual is planning to set-up an education fund for his grandchildren. He plans to invest $10,000 annually at the end of each year. He 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? (^{PV of $1}, ^{FV of $1}, ^{PVA of $1}, and ^{FVA of $1}) (Use appropriate factor(s) from the tables provided.)

A company needs to have $150,000 in 5 years, and will create a fund to insure that the $150,000 will be available. If it can earn a 6% return compounded annually, how much must the company invest in the fund today to equal the $150,000 at the end of 5 years?

City Peewee League borrowed $883,212, and must make annual year-end payments of $120,000 each. If City's interest rate is 6%, how many years will it take to pay off the loan?

How long will it take an investment of $25,000 at 6% compounded annually to accumulate to a total of $35,462.50? (^{PV of $1}, ^{FV of $1}, ^{PVA of $1}, and ^{FVA of $1}) (Use appropriate factor(s) from the tables provided.)

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 2 years? (^{PV of $1}, ^{FV of $1}, ^{PVA of $1}, and ^{FVA of $1}) (Use appropriate factor(s) from the tables provided.)

Jessica received a gift of $7,500 at the time of her high school graduation. She invests it in an account that yields 10% compounded semiannually. What will the value of Jessica's investment be at the end of 5 years? (^{PV of $1}, ^{FV of $1}, ^{PVA of $1}, and ^{FVA of $1}) (Use appropriate factor(s) from the tables provided.)

Which column (i) and row (n) would you use from a present value or future value table for 8% interest compounded quarterly for 6 years?

The future value of $100 compounded semiannually for 3 years at 12% equals $140.49. (^{PV of $1}, ^{FV of $1}, ^{PVA of $1}, and ^{FVA of $1}) (Use appropriate factor(s) from the tables provided.)

A company is setting aside $21,354 today, and wishes to have $30,000 at the end of three years for a down payment on a piece of property. What interest rate must the company earn?

Garcia Brass Fixtures is planning on replacing one of its machines in five years by making aone-time deposit of $20,000 today and four yearly contributions of $5,000 beginning at the end of year 1. The deposits will earn 10% interest. How much money will Garcia have accumulated at the end of five years to replace the machine?

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

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 the worth of the asset at the future date.

Jackson has a loan that requires a $17,000 lump sum payment at the end of four years. The interest rate on the loan is 5%, compounded annually. How much did Jackson borrow today?

You are little late planning your retirement, but are looking forward to retiring in 10 years. You expect to save $6,000 a year at an annual rate of 8%. How much will you have accumulated when you retire?