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ACCT 2101 Lecture Notes - Lecture 1: Interest Rate, 18 Months, Accrued Interest

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burgundyhound215
13 Mar 2019
School
Georgia Tech
Department
Accounting
Course
ACCT 2101
Professor
Blunck

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Document Summary

Time value of money: money today is better than money in the future, application of tvm in financial accounting, notes receivable and payable, leases, pensions, long-term assets, disclosures, key variables, principle, interest rate, time, future value, present value. Practice: how much will an investment of ,000 be worth at the end of five years if it earns: Practice: let"s assume you are currently 25 years old. You want to save ,000,000 by the time you retire at age 65. Practice: you want to buy a flat screen tv and pay for it over the next 18 months. The maximum that you can afford per month is . You can obtain a store loan for 12% interest rate for 18 months. Practice: bates company has entered into a lease agreement. The cash equivalent purchase price of the asset acquired is known and you wish to find the interest rate which is applicable to the lease payments.

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Related Questions

Time Value of Money: Basics
Using Table 12A.1 and Table 12A.2 of this chapter, determine the answers to each of the following independent situations. (Round answers to the nearest whole number.)

(a) The future value in three years of $1,000 deposited today in a savings account with interest compounded annually at 8 percent.



(b) The present value of $5,000 to be received in five years, discounted at 10 percent.


(c) The present value of an annuity of $9,000 per year for six years discounted at 10 percent.



(d) An initial investment of $14,904 is to be returned in eight equal annual payments. Determine the amount of each payment if the interest rate is 12 percent.



(e) A proposed investment will provide cash flows of $50,000, $10,000, and $7,000 at the end of Years 1, 2, and 3, respectively. Using a discount rate of 20 percent, determine the present value of these cash flows.

(f) Find the present value of an investment that will pay $7,000 at the end of Years 10, 11, and 12. Use a discount rate of 12 percent.

Part I:
Solve 4 of the following time value of money problems by filling inthe 4 columns to the right of the description.
Be sure to solve 1 problem from each of the following 4 categorieslisted under Problem Types. I have completed the first row as anexample.

Part II:
Discuss how you may use time value of money concepts in yourpersonal life. For example, saving for college tuition orretirement, paying off a car loan or home mortgage. Give specificdetails as to how you would use these formulas for more effectivedecision making. Create 1 description and fill in the table foryour newly created question.

Problem Types:
1 pv = present value of $1
2 fv = future value of $1
3 PVAo = Present Value of an Ordinary Annuity of$1 (payment at end of period)
4 FVAo = Future Value of an Annuity of $1(payment at end of period)

Description Type of Problem Table Formula Answer
1 How much money must your rich unclegive you now to finance four years of college, assuming an annualcost of $48,000 and an interest rate of 6% (applied to theprincipal until disbursed)? Present Value of anordinary Annuity PVAo PV = 48,000(3.465) $166,325.07
2 How much interest would you earn ifyou deposited $300 at 6 percent for 27 months?
3 If you deposit $2,000 in a 5-yearcertificate of deposit at 5.2%, how much will it be worth in fiveyears?
4 How much interest would you pay toborrow $670 for eight months at 12 percent?
5 You wish to borrow $18,000 to buy anew auto-mobile. Rate is 8.6% over five years with monthlypayments. Find the monthly payment.
6 What is the future value of $800 at8 percent after six years?
7 How much would you have in savingsif you kept $200 on deposit for eight years at 8% compoundedsemiannually?
8 You choose to invest $50/month in a401(k) that invests in an international stock mutual fund. Assumingan annual rate of return of 9%, how much will this fund worth ifretiring in forty years?
9 What is the future value of anannual deposit of $230 earning 6 percent for 15years?
10 If you invest $600/Year in a 401(k)that invests in an international stock mutual fund. Assuming anannual rate of return of 9%, how much will this fund worth ifretiring in forty years?
11 What amount would you have in aretirement account if you made annual deposits of $375 for 25 yearsearning 12 percent, compounded annually?
12 What is the present value of $2,200earning 15 percent for eight years?
13 How much money must you set asideat age 20 to accumulate retirement funds of $100,000 at age 65,assuming a rate of interest of 7%?
14 To have $6,000 for a child’seducation in 10 years, what amount should a parent deposit in asavings account that earns 12 percent, compoundedquarterly?
15 If you deposit $2,000 in a 5-yearcertificate of deposit at 5.2% with quarterly compounding, how muchwill it be worth in five years?
16 What is the present value of awithdrawal of $200 at the end of each year for 14 years with aninterest rate of 7 percent?
17 How much would you have to depositnow to be able to withdraw $650 at the end of each year for 20years from an account that earns 11 percent?
18 What would be the annual paymentamount for a $20,000, 10-year loan at 7 percent?

Time Value Analysis - Pensacola Surgery Center Case 12

Cases in Healthcare Finance - Louis C. Gapenski

3. Now consider the surgery centers' goal of having $200,00available in five years to buy new patient billing system.

a. What lump sum amount must be invested today in a CD paying 10percent annual interest to accumulate the needed $200,000?

b. What annual interest rate is needed to produce $200,000 after5 years if only $100,00 is invested?

4. Now consider a second alternative for accumulating funds tobuy the new billing system. In lieu of a lump sum investment,assume that five annual payments of $32,000 are made at the end ofeach year.

a. Waht type of annuity is this?

b. What is the present value of this annuity if the opportunitycost rate is 10 percent annually? 10 percent compoundedsemiannually?

c. What is the future value of this annuity if the payments areinvested in an account that pays 10 percent interest annually? 10percent compounded semiannually?

f. Suppose the payments are only $16,000 each, but they are madeevery six months, starting six months from now. What will thefuture value be if the ten payments were invested at 10 percentannual interest? If invested at BankSouth at 10 percent compoundedsemiannually?