Acct 303 chapter 5 smartbook

Sammy invested $100,000 in a savings account for 3 years at 8% compounded annually. What is the future value of Sammy's investment?

$125,971

Alex invested $10,000 in a savings account for 4 years at 10% compounded annually. What is the future value of Alex's investment?

$14,641

Jean expects to receive $5,000 at the end of each year for 4 years. The annuity has an interest rate of 7%. The present value of this annuity at Time Zero, the inception of the annuity (rounded to the nearest dollar) is

$16,936

George will deposit $2,000 in a savings account at the beginning of each year for 8 years. Assuming the interest rate is 5%, how much money will George have in the account at the end of year 8? Round your answer to the nearest dollar.

$20,053

Milo decides to invest $1,500 in a savings account every year at the beginning of the year for 10 years. Assuming an interest rate of 7%, how much will Milo have at the end of the 10th year? (Round your answer to the nearest dollar.)

$22,175

Shadow Corp. would like to invest enough cash to have $500,000 at the end of year 3. Assume the interest on the investment is compounded annually at 8%. How much money should Shadow Corp invest today to have $500,000 at the end of year 3?

$396,915

Sam expects to receive $2,000 at the end of each year for 3 years. The annuity has an interest rate of 12%. The present value of this annuity at Time Zero, the inception of the annuity (rounded to the nearest dollar) is

$4,804

James would like to deposit enough money in a savings account to have $8,000 at the end of year 3. Assuming the investment will earn 5% compounded annually, what amount should James deposit in the savings account today? Round your answer to the nearest dollar.

$6,911

Tortoise Corp. would like to invest enough cash to have $100,000 at the end of year 5. Assume the interest on the investment is compounded annually at 10%. How much does Tortoise need to invest on January 1 of Year 1?

$62,092

First County Bank loans $100,000 to a customer. At the end of the year, the customer is required to repay the $100,000 loan with 8% interest. What is the amount of interest First County Bank earns on this loan?

$8,000 Reason: $100,000 x 8% x (12/12) = $8,000

Cindy would like to deposit enough money in a savings account to have $10,000 at the end of year 4. Assuming the investment will earn 5% compounded annually, what amount should Cindy deposit in the savings account today?

$8,227

Polly sells goods to customers in exchange for a $10,000 noninterest-bearing note due in 3 years. The interest rate on this type of loan is 6%. What is the present value of the note? Round your answer to the nearest dollar.

$8,396

On January 1, Biggs Corp. borrowed $20,000 with 4% simple interest. What is the amount of interest that must be paid at year-end?

$800

Karel sells goods to customers in exchange for a $100,000 noninterest-bearing note due in 2 years. The interest rate on this type of loan is 8%. What is the present value of the note?

$85,734

We value most receivables and payables at the ______ value of ______ cash flows, reflecting an appropriate time value of money.

1 present 2 future

Most monetary assets are valued at the _____ value of _____ cash flows

1. present 2. future

________ interest is calculated by multiplying an initial investment times the applicable interest rate and the period of time the money is used, whereas _______ interest involves earning interest on the interest

1. simple 2. compound

The value of Investment B at the end of year 6 is $50,000. Assuming that interest is compounded semi-annually, and the interest rate is 8%, the present value of Investment B can be calculated by multiplying $50,000 times the present value factor of

4% for 12 periods.

How are most monetary assets and liabilities valued?

At the present value of future cash flows.

Which of the following situations would involve the calculation of the future value of an ordinary annuity?

Depositing an amount to a savings account each month that will grow to purchase a car in 5 years.

What is the formula to calculate future value of an amount "I"?

FV = I(1+i)n

Which of the following formulas represent the present value?

FV divided by (1 + i)n

The formula FV = $1(1+i)n is used to calculate

Future value of $1

Which of the following is the correct formula to calculate future value?

I(1+i)n

The first cash flow of an ordinary annuity occurs when?

One compounding period after the agreement begins.

A series of payments in the same amount is referred to as

annuity

A fixed payment at fixed intervals is called a(n)

annuity.

Which of the following items require time value of money concepts? (Select all that apply.)

capital leases pensions bonds payable

Interest on the initial investment plus interest calculated on the previously earned interest is called___________ interest.

compound

Sandra borrows $1,000 at an interest rate of 12%. If Sandra pays $133 interest at year-end, the interest rate is ______ interest.

compound

Lenny borrowed $10,000 on a 5-year interest bearing note with an interest rate of 10%. At the end of 5 years, Lenny must repay the bank $16,105. Based on the amount that must be repaid, interest was calculated with what type of interest rate?

compound interest

The ________ interest rate is the amount at which money will actually grow per year with compounding interest. (Enter only one word.)

effective

The rate at which money actually grows during a year is called the ______ rate.

effective

The interest rate at which money will actually grow during a full year is called what?

effective interest rate

Alex would like to deposit $1,000 in the bank today and would like to know what that will grow to in 5 years. Alex needs to compute the _______ value of the money.

future

$1,000 invested today at 10% compounded annually will grow to $1,210 at the end of two years. What is the $1,210 value referred to as?

future value

The amount of money that a dollar will grow to at some point in the future is known as the

future value

The amount of money that a dollar will grow to at some point in the future is the

future value of a single amount.

Jerry Corp. wishes to deposit $10,000 in the bank at the end of each year, and would like to know how much money it will have at the end of year 10. Which table should Jerry use to make this calculation?

future value of an ordinary annuity

The future value of a series of equal-sized cash flows with the first payment taking place at the end of the first period is a

future value of an ordinary annuity.

The amount of money paid or received in excess of the amount of money borrowed or lent is referred to as what?

interest

The amount paid for the use of money for some period of time is referred to as ________

interest

Which of the following accounts uses time value of money concepts to value the account?

long-term bonds

Money and claims to receive money in amounts that are fixed or determinable are called

monetary assets.

An obligation to pay amounts of cash, the amount which is fixed or determinable, is called a

monetary liability.

Match each abbreviation on a financial calculator to its function. N %I PV FV PMT CMT

number of periods interest rate present value future value annuity payment compute

In a(n) _______ ________ the series of equal payments are made at the end of each period. (Enter one word per blank.)

ordinary annuity

Brooke signs a contract to rent a car for 3 years. The first payment is due at the end of the first month after signing the agreement. This type of annuity is an

ordinary annuity

Simple interest is computed by multiplying which of the following? (Select all that apply.)

period of time applicable interest rate initial investment

The formula "future value divided by the quantity (1 + i)n" is the formula for _____ value

present

Most monetary liabilities are valued at the ______ value of ______ cash flows

present future

Karr Company borrowed $100,000 by signing a 5-year note payable at 8% interest. At the end of year 5, Karr will repay the bank $146,933. At the time the note is signed, the $100,000 is referred to as the ______ of the note payable.

present value

The formula PV = $1/(1+i)n is the formula used to calculate the

present value of $1

The amount of money today that is equivalent to a given amount to be received or paid in the future is the

present value of a single amount.

Harold would like to deposit a sum of money today that will grow to $20,000 in year 8. Which table should Harold use when making this calculation?

present value of single amount

On January 1, Gino signs a note payable for $10,000. The note has an interest rate of 3%. If Gino repays $10,300 at the end of year 1, the interest is ______ interest.

simple

The future value of an ordinary annuity table is used when calculating

the future value of a series of payments.

Assume you borrow $10,000 from the bank and promise to repay the amount in 5 equal installments beginning one year from today. The stated interest rate on the loan is 5%. What is the unknown variable in this problem?

the payment amount

Which of the following are the four variables in present value annuity problems?

the payment amount the present value the number of periods the interest rate

The ________ _________ of money concept means that money invested today will grow to a larger amount in the future. (Enter one word per blank.)

time value

The difference between $100 invested now and $105 at the end of year 1 represents the

time value of money