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31. A company is considering an investment that will return $20,000 semiannually at the end of each
semiannual period for 4 years. If the company requires an annual return of 10%, what is the maximum
amount it is willing to pay for this investment?
A. Not more than $ 63,398
B. Not more than $126,796
C. Not more than $ 80,000
D. Not more than $129,264
E. Not more than $160,000
32. What amount can you borrow if you make six quarterly payments of $4,000 at a 12 % annual rate
of interest?
A. $24,838.00
B. $21,668.80
C. $31,049.00
D. $40,000.00
E. $44,800.00
33. An individual is planning to set-up an education fund for her children. She plans to invest $10,000
annually at the end of each year. She expects to withdraw money from the fund at the end of 10 years
and expects to earn an annual return of 8%. What will be the total value of the fund at the end of 10
years?
A. $ 46,320
B. $ 67,107
C. $100,000
D. $144,870
E. $215,890
34. Chad is setting up a retirement fund, and he plans on depositing $5,000 per year in an investment
that will pay 7% annual interest. How long will it take him to reach his retirement goal of $69,080?
A. 13.816 years
B. 0.072 years
C. 10 years
D. 20 years
E. 5 years
35. What is interest?
36. Explain the concept of the present value of a single amount.
37. Explain the concept of the future value of a single amount.
38. Explain the concept of the present value of an annuity.
39. Explain the concept of the future value of an annuity.
Problems
40. A company needs to have $200,000 in 4 years, and will create a fund to insure that the $200,000
will be available. If they can earn a 7% return, how much must the company invest in the fund today
to equal the $200,000 at the end of 4 years?
41. Annette has a loan that requires a $25,000 payment at the end of three years. The interest rate on
the loan is 5%, compounded annually. How much did Annette borrow today?
42. Thompson Company has acquired a machine from a dealer that requires a payment of $45,000 at
the end of five years. This transaction includes interest at 8%, compounded semiannually. What is the
value of the machine today?
B-17
43. A company is creating a fund today by depositing $65,763. The fund will grow to $90,000 after 8
years. What annual interest rate is the company earning on the fund?
44. A company is setting aside $21,354 today, and wishes to have $30,000 at the end of three years for
a down payment on a piece of property. What interest rate must the company earn?
45. A company has $50,000 today to invest in a fund that will earn 7%. How much will the fund
contain at the end of 8 years?
46. Troy has $105,000 now. He has a loan of $175,000 that he must pay at the end of 5 years. He can
invest his $105,000 at 10% interest compounded semiannually. Will Troy have enough to pay his loan
at the end of the 5 years?
47. Madera Iron Sculpting is planning on replacing one of its robotic welders in five years by making
a one-time deposit of $20,000 today and four yearly contributions of $5,000 beginning at the end of
year 1. The deposits will earn 10% interest. How much money will Sierra have accumulated at the end
of five years to replace the welder?
48. A company borrows money from the bank by promising to make 6 annual year-end payments of
$25,000 each. How much is the company able to borrow if the interest rate is 9%?
49. A company borrows money from the bank by promising to make 8 semiannual payments of $9,000
each. How much is the company able to borrow if the interest rate is 10% compounded semiannually?
50. When you reach retirement age, you will have one fund of $100,000 from which you are going to
make annual withdrawals of $14,702. The fund will earn 6% per year. For how many years will you
be able to draw an even amount of $14,702?
51. Big League Sports borrowed $883,212, and must make annual year-end payments of $120,000
each. If Big League's interest rate is 6%, how many years will it take Big League Sports to pay off the
loan?
7.3601 is the interest factor on the Present Value of an Annuity table; i = 6%; n =10
52. Daley Co. lends $524,210 to Davis Corporation. The terms of the loan require that Davis make six
semiannual period-end payments of $100,000 each. What semiannual interest rate is Davis paying on
the loan?
53. A company is beginning a savings plan. It will be saving $15,000 per year for the next 10 years.
How much will the company have accumulated after the tenth year-end deposit, assuming the fund
earns 10% interest?
54. You are little late planning your retirement, but are looking forward to retiring in 10 years. You
expect to save $6,000 a year at an annual rate of 8%. How much will you have accumulated when you
retire?
55. A company is setting up a sinking fund to pay off $8,654,000 in bonds that are due in 7 years. The
fund will earn 7% interest, and the company intends to put away a series of equal year-end amounts
for 7 years. What is the amount of the annual deposits that the company must make?
Fill-in-the-Blank Questions
56. _____________ is a borrower's payment to the owner of an asset for its use.
57. The interest rate is also called the __________________ rate.
58. To calculate present value of an amount, two factors are required: __________________ and
___________________.
59. An _____________ is a series of equal payments occurring at equal intervals.
60.The future value of an ________________ annuity is the accumulated value of each annuity
payment with interest as of the date of the final payment.
