MBI Company's largest computer has a cash selling price of $200,000. A customer wishes to buy the
computer on a lease purchase plan over five years, with the first payment to be made at the inception of
the lease. Interest is at 10%.
Jimmy has $255,906 accumulated in a 401K plan. The fund is earning a low, but safe, 3% per year. The
withdrawals will take place at the end of each year starting a year from now. How soon will the fund be
exhausted if Jimmy withdraws $30,000 each year
On January 1, 2011, you are considering making an investment that will pay three annual payments of
$10,000. The first payment is not expected until December 31, 2013. You are eager to earn 3%. What is
the present value of the investment on January 1,
A series of equal periodic payments that starts more than one period after the agreement is called:
An annuity due.
An ordinary annuity.
A future annuity.
A deferred annuity.
AACSB: Reflective thinking
Koko Company pays $10 million at the beginning of each year for 10 years to Mocha Inc. for a building
with a fair value of $75 million. What interest rate is Mocha earning on financing this land sale?
Between 13% and 14%.
Between 7% and 8%
Spielberg Inc. signed a $200,000 noninterest-bearing note due in five years from a production company
eager to do business. Comparable borrowings have carried an 11% interest rate. At what amount should
this debt be valued at its inception?
An investor purchases a 20-year, $1,000 par value bond that pays semiannual interest of $40. If the
semiannual market rate of interest is five percent, what is the current market value of the bond?
*PVA of $1:
Polo Publishers purchased a multi-color offset press with terms of $50,000 down and a noninterestbearing note requiring payment of $20,000 at the end of each year for five years. The interest rate
implicit in the purchase contract is 11%. Polo would r
Davenport Inc. offers a new employee a lump sum signing bonus at the date of employment.
Alternatively, the employee can take $30,000 at the date of employment and another $50,000 two years
later. Assuming the employee's time value of money is 8% annu
Yamaha Inc. hires a new chief financial officer and promises to pay him a lump sum bonus four years
after he joins the company. The new CFO insists that the company invest an amount of money at the
beginning of each year in a 7% fixed rate investment
Garland Inc. offers a new employee a lump sum signing bonus at the date of employment, June 1, 2011.
Alternatively, the employee can take $39,000 at the date of employment plus $10,000 each June 1 for
five years, beginning in 2015. Assuming the employ
You borrow $20,000 to buy a boat. The loan is to be paid off in monthly installments over one year at
18 percent interest annually. The first payment is due one month from today. What is the amount of
each monthly payment?
How much must be deposited at the beginning of each year in order to accumulate to $10,000 in four
years if interest is at 9%?
$10,000 4.9847* = $2,006
*FVAD of $1: n = 4; i = 9%
An investment product promises to pay $42,000 at the end of ten years. If an investor feels this
investment should produce a rate of return of 12 percent, compounded annually, what's the most the
investor should be willing to pay for the investment?
Reba wishes to know how much would be in her savings account if she deposits a given sum in an
account and leaves it there at 6% interest for five years. She should use a table for the:
Future value of an ordinary annuity of 1.
Micro Brewery borrows $300,000 to be paid off in three years. The loan payments are semiannual with
the first payment due in six months, and interest is at 6%. What is the amount of each payment?
Column 2 is an interest table for the:
Present value of an ordinary annuity of 1.
Future value of an ordinary annuity of 1.
Present value of an annuity due of 1.
Future value of an annuity due of 1.
AACSB: Reflective thinking
At the end of each quarter, Patti deposits $500 into an account that pays 12% interest compounded
quarterly. How much will Patti have in the account in three years?
FVA = $500 x 14.1920* = $7,096
*FVA of $1:
Bill wants to give Maria a $500,000 gift in seven years. If money is worth 6% compounded
semiannually, what is Maria's gift worth today?
PV = $500,000 x .66112* = $330,560
*PV of $1: n = 14; i = 3%
Today Thomas deposited $100,000 in a three-year, 12% CD that compounds quarterly. What is the
maturity value of the CD?
FV = $100,000 x 1.42576* = $142,576
*FV of $1: n = 12; i = 3%
Match each phrase with the correct term placing the letter designating the best term in the space
provided by the phrase.
Rent for the use of money.
Series of equal cash payments received at the5
beginning of each period.
The total cash interest payments in 2011 for these notes.
($201,335,000 x .0725) + ($345,154,000 x .0775) + ($225,000,000 x .08) + ($200,000,000 x .0763) +
($25,000,000 x .0655) = $76, 243,723
Learning Objective: 06
Compute the future value of the following invested amounts at the specified periods and interest rates.
Learning Objective: 06-02 Compute the future value of a single amount.
Level of Learning: Medium
Spiceland - Ch
Tammy wants to buy a car that costs $10,000 and wishes to know the amount of the monthly payments,
which will be made at the first of the month, with interest of 12% on the unpaid balance. She should use
a table for the:
Present value of 1
Briefly describe the difference between simple interest and compound interest.
Simple interest is computed only on the initial principal amount. Compound interest includes not only
interest on the initial principal, but also interest on the accumulat
What would happen if Eastern imputed an interest rate larger than the one used in this disclosure?
It would impute an amount of interest greater than the $47 million. Therefore, the remaining debt
component of the payments (the obligation reported on
Titan Corporation has a defined benefit pension plan. One of its employees has vested benefits under
the plan which will pay her $30,000 annually for life starting with the first $30,000 payment on the
day she retires at the age of 65. The employee h
On September 30, 2011, Truckee Garbage leased equipment from a supplier and agreed to pay $125,000
annually for 15 years beginning September 30, 2012. Generally accepted accounting principles require
that a liability be recorded for this lease agreem
DEF Company will issue $2,000,000 in 10%, 10-year bonds when the market rate of interest is 12%.
Interest is paid semiannually.
Required: Determine how much cash DEF Company should realize from the bond issue.
$2,000,000 x 5% = $100,000
n = 20; i = 6
Under the NBA deferred compensation plan, payments made at the end of each year accumulate up
to retirement and then retirees are given two options. Option 1 allows the retiree to select the amount
of the annual payment to be received and option 2 al