Acct. 312 Exam 2

Answer: $828

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 5%, what is the current market value of the bond?

635.52/1000 = 0.63552 Look at TB 2 = 4years

A friend asks to borrow $635.52 today and promises to repay you $1,000 with interest compounded annually at 12%. How many years (compounding periods) will pass before you receive the payment?

n=15 i=3% TB 5 3,300 * 19.1569 = $63,218

Dave plans to deposit $3,300 in an IRA account on April 15, Year 1. The account will earn 3% annually. If he makes this $3,300 deposit on April 15 of each of the next 14 years (total of 15 deposits), how much will he have on April 14, Year 16?

30,000 * (50,000 * 0.85734) TB 2 n=2 i=8% = $72,867

Davenport Inc. offers a new employee a single-sum signing bonus at the date of employment. Alternatively, the employee can receive $30,000 at the date of employment and another $50,000 two years later. Assuming the employee's time value of money is 8% annually, what single sum at the employment date would make her indifferent between the two options?

42,000 + (62,000 * 0.89)TB2 n=2 i=6% = $97,180

Davenport Inc. offers a new employee a single-sum signing bonus at the date of employment. Alternatively, the employee can receive $42,000 at the date of employment and another $62,000 2 years later. Assuming the employee's time value of money is 6% annually, what single sum at the employment date would make her indifferent between the two options?

n=3 i=9% TB 2 21,000 * 0.77218 = $16,216

Dern Company recently sold a large order of tables to Knoll Furniture Store. Terms of the sale require Knoll to sign a noninterest-bearing note of $21,000 with payment due in three years. A rate of 9% reflects the appropriate interest rate for a loan of this type of loan. At what amount should Dern and Knoll value the note receivable/payable and corresponding sales revenue/inventory?

n=4 i=9% TB 3 6,000 * 4.5731 = $27,439

Jeannie plans to deposit $6,000 in a money market sinking fund at the end of each year for the next four years. What is the amount that will accumulate by the end of the fourth and final payment if the sinking fund earns 9% interest?

10,000 * .12 * (3/12) = 300 + 10,300 10,300 * .12 *(3/12) = 309 Final answer is $309

Kyle Carlson invested $10,000 in a savings account paying 12% interest compounded quarterly. Assuming that he makes no withdrawals, how much interest will he earn during the second quarter of the first year?

n=4 i=11% TB 4 10,000 + (30,000*3.10245) = $103,074

Lorien, Inc. leased tree excavators under terms of $10,000 down and four equal annual payments of $30,000 on the anniversary date of the lease. The interest rate implicit in the lease is 11%. For what amount would Lorien initially record the asset and lease liability?

Answer: $7,373,321

Mary Alice just won the lottery and is trying to decide between the options of receiving the annual cash flow payment option of $410,000 per year for 30 years beginning today, or receiving one lump-sum amount today. Mary Alice can earn 4% investing this money. At what lump-sum payment amount would she be indifferent between the two alternatives?

10,000,000 (6%) (1/2) = 300,000 Semiannual Coupon Amt 8% (1/2) = 4% Semiannual Yield to Maturity 10yrs * 2 = 20 yrs Maturity Period = $300,000[PVIFA 4.00%, 20 Years] + $10,000,000[PVIF 4.00%, 20 Years] = [$300,000 x 13.59033] + [$10,000,000 x 0.45639] = $4,077,099 + $4,563,900 = $8,640,999

Mufala, Inc., will issue $10,000,000 of 6% 10-year bonds. The market rate for bonds with similar risk and maturity is 8%. Interest will be paid by Mufala semiannually. What is the issue price of the bonds?

n=6 i=8% TB 6 15,000 * 4.99271 = $74,891

On January 1, 2018, Glanville Company sold goods to Otter Corporation. Otter signed an installment note requiring payment of $15,000 annually for six years. The first payment was made on January 1, 2018. The prevailing rate of interest for this type of note at date of issuance was 8%.Glanville should record sales revenue in January 2018 of:

8,000 + (20,000 * 2.48685)TB 4 n=3 i=10% = $57,737

Quaker State Inc. offers a new employee a single-sum signing bonus at the date of employment. Alternatively, the employee can receive $8,000 at the date of employment plus $20,000 at the end of each of his first three years of service. Assuming the employee's time value of money is 10% annually, what lump sum at employment date would make him indifferent between the two options?

TB 1 n=2 I= 10% 10,000 * 1.21 = $12,100

What is the future value of $10,000 invested for two years at 10% interest compounded annually?

TB 2 n=5 i=8% 5,000 * 0.68058 = $3,402.90

What is the present value of $5,000 to be received five years from now, assuming an interest rate of 8%?

n=8 i=10% TB 6 6,000 * 5.86842 = $35,211

What is the present value of $6,000 to be paid at the beginning of each of the next eight periods assuming an interest rate of 10%?

n=8 i=10% TB 4 6,000 * 5.33493 = $32,010

What is the present value of $6,000 to be paid at the end of each of the next eight periods assuming an interest rate of 10%?

PVA: n=8 i=10% TB 4 6,000 * 5.33493 = $32,010 PV: n=3 i=10% TB 2 32,010 * 0.75131 = $24, 049

What is the present value of $6,000 to be received at the end of each of eight periods, assuming the first payment occurs at the end of the fourth year and an interest rate of 10%?