Chapter6: Time Value of Money Concepts
An alternate exercise and problem set is available on the text website: www.mhhe.com/spiceland6e
Determine the future value of the following single amounts:
Determine the future value of $10,000 under each of the following sets of assumptions:
Determine the present value of the following single amounts:
Determine the combined present value as of December 31, 2011, of the following four payments to be received at the end of each of the designated years, assuming an annual interest rate of 8%.
The Field Detergent Company sold merchandise to the Abel Company on June 30, 2011. Payment was made in the form of a noninterest-bearing note requiring Abel to pay $85,000 on June 30, 2013. Assume that a 10% interest rate properly reflects the time value of money in this situation.
Calculate the amount at which Field should record the note receivable and corresponding sales revenue on June 30, 2011.p. 327
For each of the following situations involving single amounts, solve for the unknown (?). Assume that interest is compounded annually. (i = interest rate, and n = number of years)
Wiseman Video plans to make four annual deposits of $2,000 each to a special building fund. The fund's assets will be invested in mortgage instruments expected to pay interest at 12% on the fund's balance. Using the appropriate annuity table, determine how much will be accumulated in the fund on December 31, 2014, under each of the following situations:
Using the appropriate present value table and assuming a 12% annual interest rate, determine the present value on December 31, 2011, of a five-period annual annuity of $5,000 under each of the following situations:
For each of the following situations involving annuities, solve for the unknown (?). Assume that interest is compounded annually and that all annuity amounts are received at the end of each period. (i = interest rate, and n = number of years)
John Rider wants to accumulate $100,000 to be used for his daughter's college education. He would like to have the amount available on December 31, 2016. Assume that the funds will accumulate in a certificate of deposit paying 8% interest compounded annually.
Answer each of the following independent questions.
Answer each of the following independent questions.
Lincoln Company purchased merchandise from Grandville Corp. on September 30, 2011. Payment was made in the form of a noninterest-bearing note requiring Lincoln to make six annual payments of $5,000 on each September 30, beginning on September 30, 2014.
Calculate the amount at which Lincoln should record the note payable and corresponding purchases on September 30, 2011, assuming that an interest rate of 10% properly reflects the time value of money in this situation.p. 328
Don James purchased a new automobile for $20,000. Don made a cash down payment of $5,000 and agreed to pay the remaining balance in 30 monthly installments, beginning one month from the date of purchase. Financing is available at a 24% annual interest rate.
Calculate the amount of the required monthly payment.
Lang Warehouses borrowed $100,000 from a bank and signed a note requiring 20 annual payments of $13,388 beginning one year from the date of the agreement.
Determine the interest rate implicit in this agreement.
Sandy Kupchack just graduated from State University with a bachelors degree in history. During her four years at the U, Sandy accumulated $12,000 in student loans. She asks for your help in determining the amount of the quarterly loan payment. She tells you that the loan must be paid back in five years and that the annual interest rate is 8%. Payments begin in three months.
Determine Sandy's quarterly loan payment.
On April 1, 2011, John Vaughn purchased appliances from the Acme Appliance Company for $1,200. In order to increase sales, Acme allows customers to pay in installments and will defer any payments for six months. John will make 18 equal monthly payments, beginning October 1, 2011. The annual interest rate implicit in this agreement is 24%.
Calculate the monthly payment necessary for John to pay for his purchases.
On September 30, 2011, the San Fillipo Corporation issued 8% stated rate bonds with a face amount of $300 million. The bonds mature on September 30, 2031 (20 years). The market rate of interest for similar bonds was 10%. Interest is paid semiannually on March 31 and September 30.
Determine the price of the bonds on September 30, 2011.
On June 30, 2011, Singleton Computers issued 6% stated rate bonds with a face amount of $200 million. The bonds mature on June 30, 2026 (15 years). The market rate of interest for similar bond issues was 5% (2.5% semiannual rate). Interest is paid semiannually (3%) on June 30 and December 31, beginning on December 31, 2011.
On June 30, 2011, Fly-By-Night Airlines leased a jumbo jet from Boeing Corporation. The terms of the lease require Fly-By-Night to make 20 annual payments of $400,000 on each June 30. Generally accepted accounting principles require this lease to be recorded as a liability for the present value of scheduled payments. Assume that a 7% interest rate properly reflects the time value of money in this situation.
On March 31, 2011, Southwest Gas leased equipment from a supplier and agreed to pay $200,000 annually for 20 years beginning March 31, 2012. Generally accepted accounting principles require that a liability be recorded for this lease agreement for the present value of scheduled payments. Accordingly, at inception of the lease, Southwest recorded a $2,293,984 lease liability.
Determine the interest rate implicit in the lease agreement.p. 329
Listed below are several terms and phrases associated with concepts discussed in the chapter. Pair each item from List A with the item from List B (by letter) that is most appropriately associated with it.