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Exam 14: Applying Present and Future Values

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Question 1

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The present value of 1 formula is often useful when a borrowed asset must be repaid in full at a later date and the borrower wants to know its worth at the future date.

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B) False

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Question 2

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Explain the concept of the present value of an annuity.

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The present value of an annuit...

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Question 3

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Explain the concept of the present value of a single amount.

From the perspective of a depositor,a savings account is a liability with interest.

A company can use present and future value computations to estimate the interest component of holding assets over time.

A company borrows money from the bank by promising to make eight semiannual payments of $9,000 each.How much is the company able to borrow if the interest rate is 10% compounded annually?

What amount can you borrow if you make six quarterly payments of $4,000 at a 12 % annual rate of interest?

Explain the concept of the future value of a single amount.

Sandra has a savings account that is now $50,000.She started with $28,225 and earned interest at 10% compounded annually.It took five years to accumulate the $50,000.

An ordinary annuity refers to a series of equal payments made or received at the end of equal intervals.

The number of periods in a present value calculation can only be expressed in years.

At an annual interest rate of 8% compounded annually,$5,300 will accumulate to a total of $7,210.65 in five years.

How long will it take an investment of $25,000 at 6% compounded annually to accumulate to a total of $35,462.50?

An interest rate is also called a discount rate.

Interest is:

The number of periods in a future value calculation can only be expressed in years.

To calculate present value of an amount,two factors are required: __________________ and ___________________.

You hope to retire in 10 years.Regrettably you are only just now beginning to save money for this purpose.You expect to save $6,000 a year at an annual rate of 8%.How much will you have accumulated when you retire?

The future value of an ________________ annuity is the accumulated value of each annuity payment with interest as of the date of the final payment.

Future value can be found if the interest rate (i),the number of periods (n),and the present value (p) are known.