Spice+4e+Ch06+Qex+Sol - Chapter 6 Time Value of Money...

Info icon This preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Question 6-1 Interest is the amount of money paid or received in excess of the amount borrowed or lent. Question 6-2 Compound interest includes interest not only on the original invested amount but also on the accumulated interest from previous periods. Question 6-3 If interest is compounded more frequently than once a year, the effective rate or yield will be higher than the annual stated rate. Question 6-4 The three items of information necessary to compute the future value of a single amount are the original invested amount, the interest rate (i) and the number of compounding periods (n). Question 6-5 The present value of a single amount is the amount of money today that is equivalent to a given amount to be received or paid in the future. Question 6-6 Monetary assets and monetary liabilities represent cash or fixed claims/commitments to receive/pay cash in the future and are valued at the present value of these fixed cash flows. All other assets and liabilities are nonmonetary. Question 6-7 An annuity is a series of equal-sized cash flows occurring over equal intervals of time. Question 6-8 An ordinary annuity exists when the cash flows occur at the end of each period. In an annuity due the cash flows occur at the beginning of each period. Question 6-9 Chapter 6 Time Value of Money Concepts QUESTIONS FOR REVIEW OF KEY TOPICS
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Table 2 lists the present value of $1 factors for various time periods and interest rates. The factors in Table 4 are simply the summation of the individual PV of $1 factors from Table 2.
Image of page 2
Answers to Questions (continued) Question 6-10 Present Value ? 0 Year 1 Year 2 Year 3 Year 4                                                                                               ___________________________________________ $200 $200 $200 $200 n = 4, i = 10% Question 6-11 Present Value ? 0 Year 1 Year 2 Year 3 Year 4                                                                                               ___________________________________________ $200 $200 $200 $200 n = 4, i = 10% Question 6-12 A deferred annuity exists when the first cash flow occurs more than one period after the date the agreement begins. Question 6-13 The formula for computing present value of an ordinary annuity incorporating the ordinary annuity factors from Table 4 is: PVA = Annuity amount x Ordinary annuity factor Solving for the annuity amount, Annuity amount = The annuity factor can be obtained from Table 4 at the intersection of the 8% column and 5 period row. Question 6-14 Annuity amount = Annuity amount = $125.23
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Answers to Questions (concluded) Question 6-15 Companies frequently acquire the use of assets by leasing rather than purchasing them. Leases usually require the payment of fixed amounts at regular intervals over the life of the lease.
Image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern