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# ACCT 2102 Homework Problems: Chapter 11 1. Sonny Bono made an investment on August 1, 2011 which earned \$9,000 one year later. If the investment's

1. Sonny Bono made an investment on August 1, 2011 which earned \$9,000 one year later. If the investment’s rate of return was 8%, how much did Sonny invest?
\$112,500

2. Patricia inherited \$25,000 and invests this amount in an account that earns 4% interest per year compounded quarterly. If her investment grows to \$31,742.50, how long was the money left in the account?
6 years

3. Randy just borrowed \$21,999.85 to purchase a brand new car. The contract calls for monthly payments of \$730.71 for three years. What is the annual interest rate for Randy’s contract?
12%

4. Eddy Money signed a three-year contract to host the Tonight Show. Although he will receive \$130 million dollars over three years, the terms of the contract are that he is to receive \$10 million at the end of each of the next three years plus an additional \$100 million at the end of the third year. Assuming an annual interest rate of 10%, what is the actual value of Money’s contract in today’s dollars? (Hint: Think of the contact as two separate calculations)
\$99,999,000

5. Bobbi Simpson is evaluating different investment plans. She has a choice of investing \$10,000 at either 5% simple interest or 5% compound interest that is compounded annually. What will be the difference between the total amounts of interest earned after two years?
\$25,00

6. Amit is currently 28 years old and plans on retiring at age 59. His plan is to begin making annual withdrawals from his retirement account of \$85,000 each year beginning on his 59th birthday and continuing until age 82, the average life span for a man Amit’s age. Which table should Amit use to determine the total amount he needs to have saved up by the time he turns 59?
PV of an Annuity of \$1

7. The Ramos family would like to go on an European vacation when their two children graduate from college in 5 years. They can deposit \$12,500 in an investment account today and they calculate that the vacation will cost a minimum of \$20,300 in 5 years. What is the minimum annual interest rate they must earn to achieve their goal of \$20,300 if the interest is compounded semi-annually?
10.0%

8. You landed a new Accounting job and decide that you can’t show up at your clients in an old clunker, so you start looking for a new car to purchase. El Monte Slim, the car salesmen, tells you that he can put you in a shiny new car for the low, low price of \$618 per month for 3 years with a low interest rate of 12%. What is the price of the car?
\$18,606

9. What is the present value of \$10,000 received twelve years from today, assuming an interest rate of 8% compounded semiannually?
\$ 3,901

10. Betty Maksitt is saving for a retirement log cabin in West Virginia. She is going to make 20 annual deposits of \$5,000 each into an investment account beginning on July 1, 2012. Assuming an interest rate of 4%, on July 1, 2042, (the end of 20 years) Betty’s investment account will have the following balance:
\$148,891

For ACCT 2102 Homework Problems: Chapter 11 & 12

Present Value of \$1:
Interest rate
1% 4% 5% 8% 10% 12%
# of periods
2 .9803 .9246 .9070 .8573 .8264 .7972
3 .9706 .8890 .8638 .7938 .7513 .7118
10 .9053 .6756 .6139 .4632 .3855 .3220
12 .8874 .6246 .5568 .3971 .3186 .2567
20 .8195 .4564 .3769 .2145 .1486 .1037
24 .7876 .3901 .3101 .1577 .1015 .0659
36 .6989 .2437 .1727 .0626 .0323 .0169
Future Value of \$1:
interest rate
1% 4% 5% 8% 10% 12%
# of periods
2 1.0201 1.0816 1.1025 1.1664 1.2100 1.2544
3 1.0303 1.1249 1.1576 1.2597 1.3310 1.4049
10 1.1046 1.4802 1.6289 2.1589 2.5937 3.1058
12 1.1268 1.6010 1.7959 2.5182 3.1384 3.8960
20 1.2202 2.1911 2.6533 4.6610 6.7275 9.6463
24 1.2697 2.5633 3.2251 6.3412 9.8497 15.1786
36 1.4308 4.1039 5.7918 15.9682 30.9127 59.1356
Present Value of an annuity of \$1:
interest rate
1% 4% 5% 8% 10% 12%
# of periods
2 1.9704 1.8861 1.8594 1.7833 1.7355 1.6901
3 2.9410 2.7751 2.7232 2.5771 2.4869 2.4018
10 9.4713 8.1109 7.7217 6.7101 6.1446 5.6502
12 11.2551 9.3851 8.8633 7.5361 6.8137 6.1944
20 18.0456 13.5903 12.4622 9.8181 8.5136 7.4694
24 21.2434 15.2470 13.7986 10.5288 8.9847 7.7843
36 30.1075 18.9083 16.5469 11.7172 9.6765 8.1924
Future Value of an annuity of \$1:
interest rate
1% 4% 5% 8% 10% 12%
# of periods
2 2.0100 2.0400 2.0500 2.0800 2.100 2.1200
3 3.0301 3.1216 3.1525 3.2464 3.3100 3.3744
10 10.4622 12.0061 12.5779 14.4866 15.9374 17.5487
12 12.6825 15.0258 15.9171 18.9771 21.3843 24.1331
20 22.0190 29.7781 33.0660 45.7620 57.2750 72.0524
24 26.9735 39.0826 44.5020 66.7648 88.4973 118.1552
36 43.0769 77.5983 95.8363 187.1021 299.1268 484.4631
ACCT 2102 Homework Problems: Chapter 11 1. Sonny Bono made an investment on August 1, 2011 which earned \$9,000 one year later. If the investment’s rate of return was 8%, how much did Sonny invest? \$112,500 2. Patricia inherited \$25,000 and invests this amount in an account that earns 4% interest per year compounded quarterly. If her investment grows to \$31,742.50, how long was the money left in the account? 6 years 3. Randy just borrowed \$21,999.85 to purchase a brand new car. The contract calls for monthly payments of \$730.71 for three years. What is the annual interest rate for Randy’s contract? 12% 4. Eddy Money signed a three-year contract to host the Tonight Show. Although he will receive \$130 million dollars over three years, the terms of the contract are that he is to receive \$10 million at the end of each of the next three years plus an additional \$100 million at the end of the third year. Assuming an annual interest rate of 10%, what is the actual value of Money’s contract in today’s dollars? (Hint: Think of the contact as two separate calculations) \$99,999,000 5. Bobbi Simpson is evaluating different investment plans. She has a choice of investing \$10,000 at either 5% simple interest or 5% compound interest that is compounded annually. What will be the difference between the total amounts of interest earned after two years? \$25,00 6. Amit is currently 28 years old and plans on retiring at age 59. His plan is to begin making annual withdrawals from his retirement account of \$85,000 each year beginning on his 59 th birthday and continuing until age 82, the average life span for a man Amit’s age. Which table should Amit use to determine the total amount he needs to have saved up by the time he turns 59? PV of an Annuity of \$1 7. The Ramos family would like to go on an European vacation when their two children graduate from college in 5 years. They can deposit \$12,500 in an investment account today and they calculate that the vacation will cost a minimum of \$20,300 in 5 years. What is the minimum annual interest rate they must earn to achieve their goal of \$20,300 if the interest is compounded semi-annually? 10.0% 8. You landed a new Accounting job and decide that you can’t show up at your clients in an old clunker, so you start looking for a new car to purchase. El Monte Slim, the car salesmen, tells you that he can put you in a shiny new car for the low, low price of \$618 per month for 3 years with a low interest rate of 12%. What is the price of the car? \$18,606 9. What is the present value of \$10,000 received twelve years from today, assuming an interest rate of 8% compounded semiannually? \$ 3,901 10. Betty Maksitt is saving for a retirement log cabin in West Virginia. She is going to make 20 annual deposits of \$5,000 each into an investment account beginning on July 1, 2012. Assuming an interest rate of 4%, on July 1, 2042, (the end of 20 years) Betty’s investment account will have the following balance: \$148,891
For ACCT 2102 Homework Problems: Chapter 11 & 12 Present Value of \$1: Interest rate 1% 4% 5% 8% 10% 12% # of periods 2 .9803 .9246 .9070 .8573 .8264 .7972 3 .9706 .8890 .8638 .7938 .7513 .7118 10 .9053 .6756 .6139 .4632 .3855 .3220 12 .8874 .6246 .5568 .3971 .3186 .2567 20 .8195 .4564 .3769 .2145 .1486 .1037 24 .7876 .3901 .3101 .1577 .1015 .0659 36 .6989 .2437 .1727 .0626 .0323 .0169 Future Value of \$1: interest rate 1% 4% 5% 8% 10% 12% # of periods 2 1.0201 1.0816 1.1025 1.1664 1.2100 1.2544 3 1.0303 1.1249 1.1576 1.2597 1.3310 1.4049 10 1.1046 1.4802 1.6289 2.1589 2.5937 3.1058 12 1.1268 1.6010 1.7959 2.5182 3.1384 3.8960 20 1.2202 2.1911 2.6533 4.6610 6.7275 9.6463 24 1.2697 2.5633 3.2251 6.3412 9.8497 15.1786 36 1.4308 4.1039 5.7918 15.9682 30.9127 59.1356 Present Value of an annuity of \$1: interest rate 1% 4% 5% 8% 10% 12% # of periods 2 1.9704 1.8861 1.8594 1.7833 1.7355 1.6901 3 2.9410 2.7751 2.7232 2.5771 2.4869 2.4018 10 9.4713 8.1109 7.7217 6.7101 6.1446 5.6502 12 11.2551 9.3851 8.8633 7.5361 6.8137 6.1944 20 18.0456 13.5903 12.4622 9.8181 8.5136 7.4694 24 21.2434 15.2470 13.7986 10.5288 8.9847 7.7843 36 30.1075 18.9083 16.5469 11.7172 9.6765 8.1924 Future Value of an annuity of \$1: interest rate 1% 4% 5% 8% 10% 12% # of periods 2 2.0100 2.0400 2.0500 2.0800 2.100 2.1200 3 3.0301 3.1216 3.1525 3.2464 3.3100 3.3744 10 10.4622 12.0061 12.5779 14.4866 15.9374 17.5487 12 12.6825 15.0258 15.9171 18.9771 21.3843 24.1331 20 22.0190 29.7781 33.0660 45.7620 57.2750 72.0524 24 26.9735 39.0826 44.5020 66.7648 88.4973 118.1552 36 43.0769 77.5983 95.8363 187.1021 299.1268 484.4631

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