Tvm-key - TIME VALUE MONEY ANSWER KEY TO PRACTICE PROBLEMS Written by Professor Gregory M Burbage MBA CPA CMA CFM Please observe all copyright laws

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TIME VALUE MONEY – ANSWER KEY TO PRACTICE PROBLEMS © tvm-key.doc Written by Professor Gregory M. Burbage, MBA, CPA, CMA, CFM Please observe all copyright laws 1. For each of the following cases, indicate (a) to what number of periods and (b) to what interest rate columns you would refer in looking up the table factor. Number of Annual Years Invested Rate Compounded Future value of 1 table: Case A 8 6% Annually = 1.5938 n=8; i=6 Case B 3 8% Semiannually = 1.2653 n=6; i=4 Future value of an annuity: Case C 2 12% Monthly = 26.9735 n=24; i=1 Case D 5 8% Quarterly = 24.2974 n=20; i=2 Present value of 1: Case E 1 48% Bi-monthly = 0.6217 n=24; i=2 2 t i m e s p e r m o n t h Present value of an annuity: Case F 2 18% Monthly Interpolation using the table factors : (21.2434 + 18.9139)/2 = 20.07865 n=24; i=1.5 2. You invested $5,000 at 8% annual interest leaving the money invested without withdrawing any of the interest. How much would you have at the end of 12 years assuming the investment earns interest compounded annually? Future value of amount n=12; i=8 5,000 * 2.5182 = 12,591 3. You borrowed $20,000 on July 1, 2005. This amount plus accrued interest at 12% per year, compounded quarterly, is to be repaid on July 1, 2010. How much will you have to repay on July 1, 2010? Future value of amount n=20; i=3 20,000 * 1.8061 = 36,122 4. You agreed to make annual sinking fund deposits (savings account deposits) of $60,000 per year because you borrowed $800,000 by issuing some bonds. Your deposits are made at the end of each year into an account paying 5% annual interest. What amount will be in the sinking fund at the end of 10 years? Will you have enough to pay back the bonds? Future value of annuity n=10; i=5 60,000 * 12.5779 = 754,674 not quite enough 5. When your daughter Betty-Joe-Bob was born, you and your spouse invested $7,000 in a savings account paying 8% interest. Each year, starting with her first birthday and ending on her eighteenth birthday, you plan to deposit $1,000 into the same account. How much will be in the savings account on your daughter’s 18th birthday (after the last deposit)? Future value of amount plus Future value of annuity n=18; i=8 (7,000 * 3.9960) + (1,000 * 37.4502) = 65,422.20
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6. What is the present value of $10,000 due in 8 periods discounted at 10%? Present value of amount n=8; i=10 10,000 * .4665 = 4,665 7. You want to earn 18% per year, compounded semiannually, on an investment that will return $200,000 eight years from now. What is the amount you should invest now to earn this rate of return? Present value of amount
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This note was uploaded on 12/14/2010 for the course BUS 3103 taught by Professor Nugent during the Spring '09 term at Texas Woman's University.

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Tvm-key - TIME VALUE MONEY ANSWER KEY TO PRACTICE PROBLEMS Written by Professor Gregory M Burbage MBA CPA CMA CFM Please observe all copyright laws

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