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Exam 14: Applying Present and Future Values

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Question 21

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Madera Iron Sculpting is planning to save the money needed to replace one of its robotic welders in five years by making a one-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 Madera have accumulated at the end of five years to replace the welder?

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Question 22

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An individual is planning to set-up an education fund for her children.She plans to invest $10,000 annually at the end of each year.She 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?

A) $ 46,320
B) $ 67,107
C) $100,000
D) $144,870
E) $215,890

F) B) and E)
G) A) and B)

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Question 23

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

With deposits of $5,000 at the end of each year,you will have accumulated $38,578 at the end of the sixth year if the annual rate of interest is 10%.

Troy has $105,000 now.He has a loan of $175,000 that he must pay at the end of five years.He can invest his $105,000 at 10% interest compounded semiannually.Will Troy have enough to pay his loan at the end of the five years?

A company borrows money from the bank by promising to make six annual year-end payments of $25,000 each.How much is the company able to borrow if the interest rate is 9%?

The future value of an ordinary annuity is the accumulated value of each annuity payment with interest one period after the date of the final payment.

A company is beginning a savings plan.It will save $15,000 per year for the next 10 years.How much will the company have accumulated after the tenth year-end deposit,assuming the fund earns 10% interest?

Chad is setting up a retirement fund,and he plans on depositing $5,000 per year in an investment that will pay 7% annual interest.How long will it take him to reach his retirement goal of $69,080?

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

Daley Co.lends $524,210 to Davis Corporation.The terms of the loan require that Davis repay the loan with six semiannual period-end payments of $100,000 each.What semiannual interest rate is Davis paying on the loan?

The future value of $100 compounded semiannually for three years at 12% equals $140.49.

An annuity is a series of equal payments occurring at equal intervals.

Crowe Company has acquired a building with a loan that requires payments of $20,000 every six months for five years.The annual interest rate on the loan is 12%.What is the present value of the building?

The interest rate is also called the __________________ rate.

_____________ is a borrower's payment to the owner of an asset for its use.

When you reach retirement age,you will have one fund of $100,000 from which you are going to make annual withdrawals of $14,702.The fund will earn 6% per year.For how many years will you be able to draw an even amount of $14,702?

The present value of $5,000 per year for three years at 12% compounded annually is $12,009.

What interest rate is required to accumulate $6,802.50 in four years from an investment of $5,000?

A company needs to have $200,000 in four years,and will create a fund to ensure that the $200,000 will be available.If they can earn a 7% return,how much must the company invest in the fund today to equal the $200,000 at the end of four years?