6 Accounting and the Time Value of Money BRIEF EXERCISES 6
BRIEF EXERCISES
BE6-1 (L02) Chris Spear invested $15,000 today in a fund that earns 8% compounded annually. To what amount will the investment grow in 3 years? To what amount would the investment grow in 3 years if the fund earns 8% annual interest compounded semiannually?
BE6-2 (L02) Tony Bautista needs $25,000 in 4 years. What amount must he invest today if his investment earns 12% compounded annually? What amount must he invest if his investment earns 12% annual interest compounded quarterly?
BE6-3 (L02) Candice Willis will invest $30,000 today. She needs $150,000 in 21 years. What annual interest rate must she earn?
BE6-4 (L02) Bo Newman will invest $10,000 today in a fund that earns 5% annual interest. How many years will it take for the fund to grow to $17,100?
BE6-5 (L03) Sally Medavoy will invest $8,000 a year for 20 years in a fund that will earn 6% annual interest. If the first payment into the fund occurs today, what amount will be in the fund in 20 years? If the first payment occurs at year-end, what amount will be in the fund in 20 years?
BE6-6 (L03) Steve Madison needs $250,000 in 10 years. How much must he invest at the end of each year, at 5% interest, to meet his needs?
BE6-7 (L02) John Fillmore’s lifelong dream is to own his own fishing boat to use in his retirement. John has recently come into an inheritance of $400,000. He estimates that the boat he wants will cost $300,000 when he retires in 5 years. How much of his inheritance must he invest at an annual rate of 8% (compounded annually) to buy the boat at retirement?
BE6-8 (L02) Refer to the data in BE6-7. Assuming quarterly compounding of amounts invested at 8%, how much of John
Fillmore’s inheritance must be invested to have enough at retirement to buy the boat?
BE6-9 (L03) Morgan Freeman is investing $9,069 at the end of each year in a fund that earns 5% interest. In how many years will the fund be at $100,000?
BE6-10 (L04) Henry Quincy wants to withdraw $30,000 each year for 10 years from a fund that earns 8% interest. How much must he invest today if the first withdrawal is at year-end? How much must he invest today if the first withdrawal takes place immediately?
BE6-11 (L04) Leon Tyler’s VISA balance is $793.15. He may pay it off in 12 equal end-of-month payments of $75 each. What interest rate is Leon paying?
BE6-12 (L04) Maria Alvarez is investing $300,000 in a fund that earns 4% interest compounded annually. What equal amounts can Maria withdraw at the end of each of the next 20 years?
BE6-13 (L03) Adams Inc. will deposit $30,000 in a 6% fund at the end of each year for 8 years beginning December 31, 2017.
What amount will be in the fund immediately after the last deposit?
BE6-14 (L04) Amy Monroe wants to create a fund today that will enable her to withdraw $25,000 per year for 8 years, with the first withdrawal to take place 5 years from today. If the fund earns 8% interest, how much must Amy invest today?
BE6-15 (L05) Clancey Inc. issues $2,000,000 of 7% bonds due in 10 years with interest payable at year-end. The current market rate of interest for bonds of similar risk is 8%. What amount will Clancey receive when it issues the bonds?
BE6-16 (L04) Zach Taylor is settling a $20,000 loan due today by making 6 equal annual payments of $4,727.53. Determine the interest rate on this loan, if the payments begin one year after the loan is signed.
BE6-17 (L04) Consider the loan in BE6-16. What payments must Zach Taylor make to settle the loan at the same interest rate but with the 6 payments beginning on the day the loan is signed?
