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29.
Judy Bright has just won the lottery. She can elect to receive her winnings in equal
payments of $200,000 a year for the next ten years on December 31 or to receive
$2,000,000 immediately. If the current interest rate is 6%, which choice will provide the
highest amount:
30.
To determine the present value of a single amount to be received or paid at a future time
you need to know all of the following except:
31.
To determine the amount to be deposited in a bank today to grow to $5,000 three years
from now at 7% which table should be used?
32.
Anthony Driver wants to buy a new car in 4 years. He knows that he can earn 6% interest
compounded semi-annually. How much must he deposit now in order to have $26,000 at
the end of 4 years?
33.
Compound interest:
34.
Financial instruments do not include:
35.
Financial instruments are recorded at:
36.
A note that does not include an interest rate should be recorded at:
37.
Joe Notsosmart invested $10,000 at 8% simple interest for 5 years. How much more would
he have received if he had received compound interest annually at the same rate?
38.
The present value of a cash amount:
39.
If you receive $20,000 as a gift and invest it at 12% compounded quarterly, how much will
you have at the end of three years?
40.
The time value of money is based on the idea that:
41.
Belle invests $200 at the end of each year in a savings account which pays 5% annually.
How much will Belle have at the end of 5 years?
42.
A future amount is the dollar amount to which a present value will ______________ over
time.
Essay Questions
43.
Explain what is meant by the "time value of money." Provide examples.
44.
Explain how compound interest applies to the time value of money.
45.
Use the tables to determine the answers to the following:
(1) How much must be invested now for 5 periods at 6% to amount to $15,000?
(2) How much is $3,000 invested now at 8% in 8 periods worth?
(3) How much is $25,000 compounded quarterly at 12% for 4 years?
46.
Joan is 75 years old and wishes to retire. She needs to have $48,000 a year plus her social
security to live in the style she is accustomed to. She would like to have enough money in
her retirement account which earns 5% compounded annually to support her for the next
15 years. How much must be in the fund if she takes the first payment at year-end?
47.
Powers Company wishes to issue $2,000,000 of 8%, 10 year bonds which pay interest semi-
annually. The current discount rate is 6%. What amount should the bonds sell for?
48.
Sam Rivers has $3,000 to invest. He must decide whether to invest this money for five
years at 10% compounded semi-annually or at 12% compounded annually. Which option
should he select?
49.
(a) How long will it take Barbara to accumulate $30,000 to buy a car if she invests $15,000
at 5%? (b) How long will it take if she invests the same amount at 4% semi-annually?
