ACG 2021 Lecture Notes - Lecture 16: Interest Rate, Effective Interest Rate, Market Price
Get access
Related Documents
Related Questions
Select the term that best fits each of the following definitions and descriptions.
a. | Notes receivable |
b. | Nontrade receivables |
c. | Net realizable value |
d. | Direct write-off method |
e. | Interest-bearing note |
f. | Maturity date |
g. | Promissory note |
h. | Factoring receivables |
i. | Trade discount |
j. | Present value |
k. | Allowance method |
l. | Sales discount |
m. | Negotiable note |
n. | Non-interest-bearing note |
o. | Assignment of receivables |
p. | Valuation date |
____ 21. Receivables that are evidenced by a formal written promise to pay a certain sum of money at a specified date.
____ 22. The date the principal amount of a note is due to be paid.
____ 23. The sum of future receipts or payments discounted to the present date at an appropriate rate of interest.
____ 24. A method of recognizing the estimated losses from uncollectible accounts as expenses during the period in which the sales occur.
____ 25. A note that is legally transferable by endorsement and delivery.
____ 26. Any receivable arising from transactions that are not directly associated with the normal operating activities of a business.
____ 27. A note written in the form where the face amount includes the interest charges.
____ 28. The borrowing of money with receivables pledged as security on the loan.
____ 29. A note written in the form where the maker promises to pay the face amount plus interest at a specified rate.
____ 30. An unconditional written promise to pay a certain sum of money at a specified time.
The Landers Corporation needs to raise $1.6 million of debt on a 20-year issue. If it places the bonds privately, the |
interest rate will be 10 percent. Twenty thousand dollars in out-of-pocket costs will be incurred. For a public issue, |
the interest rate will be 9 percent, and the underwriting spread will be 2 percent. There will be $120,000 in |
out-of-pocket costs. Assume interest on the debt is paid semiannually, and the debt will be outstanding for the |
full 20-year period, at which time it will be repaid. |
Which plan offers the higher net present value? For each plan, compare the net amount of funds initially |
availableâinflowâto the present value of future payments of interest and principal to determine net present |
value. Assume the stated discount rate is 12 percent annually, but use 6 percent semiannually throughout the |
analysis. (Disregard taxes.) |
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 childâseducation 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? |