Cornerstones of Financial Accounting
4th Edition
ISBN: 9781337690881
Author: Jay Rich, Jeff Jones
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter A3, Problem 19E
Present Values
Krista Kellman has an opportunity to purchase a government security that will pay $200,000 in
5 years.
Required:
Note: Round answers to two decimal places.
1. Calculate what Krista would pay for the security if the appropriate interest (discount) rate is 6% compounded annually.
2. Calculate what Krista would pay for the security if the appropriate interest (discount) rate is 10% compounded annually.
3. Calculate what Krista would pay for the security if the appropriate interest (discount) rate is 6% compounded semiannually.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
1. You deposit GHS10,000 today into an account paying 6% annual interest and leave it on deposit for exactly eight years.
Required:
How much will be the amount in the account at the end of eight years if interest is compounded annually?
2. Imagine you are a professional personal finance planner. One of your clients ask you the following question. Use time value of money technique to develop appropriate responses in each question. I borrowed GHS75,000, am required to repay it in six equal (annual) end of year instalments of GHS3,344 and want to know what interest rate I am paying.
You purchase an annuity that will pay you $100 every three months for five years.
The first $100 payment will be made as soon as you purchases the investment.
If your required rate of return is 9% , how much should you be willing to pay for this investment?
Group of answer choices
$1,596.82
$1,632.29
$1,759.34
$1,510.46
1. Exercise One: Jessica decides to take a $25,000 to help her cover her tuition expenses.
The tenor of the loan is 10 years, and the interest rate is 6.75%. Repayments will be
made on a monthly frequency. Based on the aforementioned information, and the
material covered in class, (a) use the PMT function in Excel to find the fixed total
payment, (b) verify your answer from (a) by programming the present value annuity
formula as shown in class, (c) create an amortization schedule for this loan, (d) create a
bar chart showing the Fixed Total Payment, Interest Paid, and Principal Paid.
Chapter A3 Solutions
Cornerstones of Financial Accounting
Ch. A3 - Prob. 1DQCh. A3 - Prob. 2DQCh. A3 - Prob. 3DQCh. A3 - Prob. 4DQCh. A3 - Prob. 5DQCh. A3 - Prob. 1CECh. A3 - Prob. 2CECh. A3 - Prob. 3CECh. A3 - Prob. 4CECh. A3 - Prob. 5CE
Ch. A3 - Use Future Value and Present Value Tables to Apply...Ch. A3 - Prob. 7CECh. A3 - Prob. 8CECh. A3 - Prob. 9CECh. A3 - Prob. 10CECh. A3 - Prob. 11ECh. A3 - Prob. 12ECh. A3 - Prob. 13ECh. A3 - Future Values and Long-Term Investments Portman...Ch. A3 - Prob. 15ECh. A3 - Prob. 16ECh. A3 - Prob. 17ECh. A3 - Present Values Phillips Enterprises signed notes...Ch. A3 - Present Values Krista Kellman has an opportunity...Ch. A3 - Prob. 20ECh. A3 - Prob. 21ECh. A3 - Future Value of a Single Cash Flow Jenkins...Ch. A3 - Prob. 23ECh. A3 - Installment Sale Baileys Billiards sold a pool...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Suppose you take out a $117,000, 20-year mortgage loan to buy a condo. The interest rate on the loan is 5%. To keep things simple, we will assume you make payments on the loan annually at the end of each year. a. What is your annual payment on the loan? b. Construct a mortgage amortization. c. What fraction of your initial loan payment is interest? d. What fraction of your initial loan payment is amortization? e. What is the total of the loan amount paid off after 10 years (halfway through the life of the loan)? f. If the inflation rate is 3%, what is the real value of the first (year-end) payment? g. If the inflation rate is 3%, what is the real value of the last (year-end) payment? h. Now assume the inflation rate is 6% and the real interest rate on the loan is unchanged. What must be the new nominal interest rate? i-1. Recompute the amortization table. i-2. What is the real value of the first (year-end) payment in this high-inflation scenario? j. What is the real value of the last…arrow_forwardSuppose you are buying your first home for $144,000, and you have $17,000 for your down payment. You have arranged to finance the remainder with a 30-year, monthly payment, amortized mortgage at a 6.40% nominal interest rate, with the first payment due in one month. What will your monthly payments be? Group of answer choices $831.93 $857.64 $753.30 $714.27 $794.39arrow_forwardSuppose you are buying your first home for $210,000, and you have $15,000 for your down payment. You have arranged to finance the remainder with a 30-year, monthly payment, amortized mortgage at a 6.5% nominal interest rate, with the first payment due in one month. What will your monthly payments be? Select the correct answer. a. $1,231.53 b. $1,233.53 c. $1,232.53 d. $1,234.53 e. $1,230.53arrow_forward
- A man plans to take a vacation in 4 years. He wants to buy a certificate of deposit for $1200 that he will cash in for the trip. What is the minimum annual interest rate he must obtain on the certificate if he needs at least $1700 for the trip? Assume that the interest on the loan is computed using simple interest The rate he must obtain is ___%arrow_forwardSuppose that you’d like to retire in 40 years and you want to have a future value of $ 1000000 in a savings account. Also suppose that your employer makes regular monthly payments into your retirement account. If you can expect an APR of 6.5% for your account, how much do you need your employer to deposit each month? Employer Contribution = The formulas we have been using assume that the interest rate is constant over the period in question. Over a period of 40 years, though, interest rates can vary widely. To see what difference the interest rate can make, let’s assume a constant APR of 5% for your retirement account. How much do you need your employer to deposit each month under this assumption? Employer Contribution =arrow_forwardSaved Mark Ventura has just purchased an annuity to begin payment two years from today. The annuity is for $30,000 per year and is designed to last 8 years. If the interest rate for this problem calculation is 9 percent, what is the most he should have paid for the annuity? Use Appendix B and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Maximum payment 139,756.40arrow_forward
- Suppose you wish to retire forty years from today. You determine that you need $50,000 per year once you retire, with the first retirement funds withdrawn one year from the day you retire. You estimate that you will earn 6% per year on your retirement funds and that you will need funds up to 25 years after retirement. Use the PV of an ordinary annuity due formula. a) Calculate the amount you must deposit in an account today so that you have enough funds for retirement b) Calculate the amount you must deposit each year, starting one year from today, so that you have enough funds for retirement.arrow_forwardSuppose that you'd like to retire in 40 years and you want to have a future value of $ 500000 in a savings account. Also suppose that your employer makes regular monthly payments into your retirement account. If you can expect an APR of 7.5% for your account, how much do you need your employer to deposit each month? Employer Contribution = The formulas we have been using assume that the interest rate is constant over the period in question. Over a period of 40 years, though, interest rates can vary widely. To see what difference the interest rate can make, let's assume a constant APR of 4% for your retirement account. How much do you need your employer to deposit each month under this assumption? Employer Contribution = rate dic restarrow_forwardSally Mander wants to set up a perpetual annuity for herself that will pay $85,000 annually that will begin 40 years from now. Assuming an interest rate of 8% and with the impact of inflation of 3%, how much will Sally need to save annually? $7,071 $8,073 O $6,562 O $9,075arrow_forward
- You want to have $67,000 in your savings account 10 years from now, and you're prepared to make equal annual deposits into the account at the end of each year. If the account pays 6.3 percent interest, what amount must you deposit each year? Group of answer choices $6,700.00 $5,011.98 $4,221.01 $4,220.99 $9,350.13arrow_forwardAn investor is considering an annuity that pays $40,000 per year for four years. 1. Assuming the first $40,000 is paid in a years time given a discount rate of 4% what should the investor pay for this annuity today? 2. Assuming the first $40,000 is paid out immediately what should the investor pay today? (Asssume same discount rate). 3. If the investor pays $130,000 today and assuming the first paymentarrives in a years time, what would this investment’s internal rate of return be? (Asssume same discount rate). 4. What would the investor pay today if the first payment arrived in 5years time? (Asssume same discount rate). 5. If the investor invests $40,000 per year at the end of the next 4 years what would this be worth in 4 years time? (Asssume same discount rate).arrow_forward#1) Time value: Annuities Marian Kirk wishes to select the better of two 10-year annuities,C and D. Annuity C is an ordinary annuity of $2,500 per year for 10 years. AnnuityD is an annuity due of $2,200 per year for 10 years.a. Find the future value of both annuities at the end of year 10 assuming that Mariancan earn (1) 10% annual interest and (2) 20% annual interest.c. Find the present value of both annuities, assuming that Marian can earn (1) 10%annual interest and (2) 20% annual interest. #2) Retirement planning Hal Thomas, a 25-year-old college graduate, wishes to retire atage 65. To supplement other sources of retirement income, he can deposit $2,000each year into a tax-deferred individual retirement arrangement (IRA). The IRA willearn a 10% return over the next 40 years.a. If Hal makes annual end-of-year $2,000 deposits into the IRA, how much will hehave accumulated by the end of his sixty-fifth year?b. If Hal decides to wait until age 35 to begin making annual end-of-year…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
5 Steps to Setting Achievable Financial Goals | Brian Tracy; Author: Brian Tracy;https://www.youtube.com/watch?v=aXDuLxEJqBo;License: Standard Youtube License