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Present Value Computations

Using the present value tables, solve the following.

(Click here to access the time value of money tables to use withthis problem.)

Round your answers to two decimal places.

Required:

What is the present value on January 1, 2016, of $30,000 due onJanuary 1, 2020, and discounted at 10% compounded annually?

$

What is the present value on January 1, 2016, of $40,000 due onJanuary 1, 2020, and discounted at 11% compounded semiannually?

$

What is the present value on January 1, 2016, of $50,000 due onJanuary 1, 2020, and discounted at 16% compounded quarterly?

$

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Sixta Kovacek
Sixta KovacekLv2
28 Sep 2019

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Series of Compound Interest Techniques

The following are several situations involving compoundinterest.

Required:

Using the appropriate table, solve each of the following:

(Click here to access the time value of money tables to use withthis problem.)

1.Hope Dearborn invests $40,000 on January 1, 2016, in a savingsaccount that earns interest of 8% compounded semiannually. Whatwill be the amount in the fund on December 31, 2021?

Round your answer to two decimal places.

$

2. Ben Johnson receives a bonus of $5,000 each year on December31. Beginning on December 31, 2016, he deposits his bonus everyyear in a savings account that earns interest of 12% compoundedannually. What will be the amount in the fund on December 31, 2020,after he deposits his bonus received on that date?

Round your answer to two decimal places.

$

3. Ron Sewert owes $30,000 on a non-interest-bearing note dueJanuary 1, 2026. He offers to pay the amount on January 1, 2016,provided that it is discounted at 10% on a compound annual discountbasis. What would he have to pay on January 1, 2016, under thisassumption?

Round your answer to two decimal places.

$

4. June Stickney purchased an annuity on January 1, 2016, which,at a 12% annual rate, would yield $6,000 each June 30 and December31 for the next 6 years. What was the cost of the annuity toStickney?

Round your answer to two decimal places.

$

5. Five equal annual contributions are to be made to a fund,with the first deposit on December 31, 2016. Determine the equalcontributions that, if invested at 10% compounded annually, willproduce a fund of $30,000 on December 31, 2021.

Round your answer to two decimal places.

$

6. Beginning on December 31, 2017, 6 equal annual withdrawalsare to be made. Determine the equal annual withdrawals if $11,000is invested at 10% interest compounded annually on December 31,2016.

Round your answer to two decimal places.

$

Hartford Research issues bonds dated January 1, 2015, that payinterest semiannually on June 30 and December 31. The bonds have a$28,000 par value and an annual contract rate of 10%, and theymature in 10 years. (Table B.1, Table B.2, Table B.3, and TableB.4) (Use appropriate factor(s) from the tables provided.Round all table values to 4 decimal places, and use the roundedtable values in calculations.)

Required:
Consider each of the followingthree separate situations.

1. The market rate at the date ofissuance is 8%.
(a)

Complete the below table to determine the bonds' issue price onJanuary 1, 2015.

Total Values are based on

n= __?

i=__?

Cash Flow Table Value Amount Present Value

Par value (maturity) ?? ?? ??

Interest (annuity) ?? ?? ??

Price of bonds ??

(b)

Prepare the journal entry to record their issuance.

Record the issue of bonds with a par value of $28,000 cash onJanuary 1, 2015. Assume that the market rate of interest at thedate of issue is 8%.

JAN 01

2. The market rate at the date ofissuance is 10%.
(a)

Complete the below table to determine the bonds' issue price onJanuary 1, 2015.

n= __?

i=__?

Cash Flow Table Value Amount Present Value

Par value (maturity) ?? ?? ??

Interest (annuity) ?? ?? ??

Price of bonds ??
(b)

Prepare the journal entry to record their issuance.

Record the issue of bonds with a par value of $28,000 cash onJanuary 1, 2015. Assume that the market rate of interest at thedate of issue is 10%.

3. The market rate at the date ofissuance is 12%.
(a)

Complete the below table to determine the bonds' issue price onJanuary 1, 2015.

Record the issue of bonds with a par value of $28,000 cash onJanuary 1, 2015. Assume that the market rate of interest at thedate of issue is 8%.

JAN 01

2. The market rate at the date ofissuance is 10%.
(a)

Complete the below table to determine the bonds' issue price onJanuary 1, 2015.

n= __?

i=__?

Cash Flow Table Value Amount Present Value

Par value (maturity) ?? ?? ??

Interest (annuity) ?? ?? ??

Price of bonds ??

(b)

Prepare the journal entry to record their issuance.
  • Record the issue of bonds with a par value of $28,000 cash onJanuary 1, 2015. Assume that the market rate of interest at thedate of issue is 12%.

1) Answer each of the following independent situations,showing complete work (with the time value of money). All interestrates are given as annual interest rates.

a) On January 1, 2016, Adelphi Corporation sold awarehouse that cost $411,000 and that had accumulated depreciationof $136,000 on the date of sale. Adelphi received as considerationa $400,000 non-interest-bearing note, due on January 1, 2020. Therewas no established exchange price for the building, and the notehad no ready market. The prevailing rate of interest for a note ofthis type on January 1, 2016, was 8%. At what amount should thegain or loss from the sale of the building be reported? (2 points)[This is a present value problem, where $400,000 is theFV]

b) On January 1, 2016, Adelphi Corporation issued 1,000of the 6%, 10-year bonds. The bonds have a par value of $1,000 perbond, and pay interest semi-annually beginning January 1, 2017.Adelphi sold the bonds to yield 8% annually. How much did Adelphireceive as the issue price of the bonds? (2 points) [Thisis a present value problem. You have to use 3% to calculate thesemi-annual interest payment, 4% as the rate to look up the PVfactor, and 20 as the number ofperiods]

c) Adelphi Corporation bought new equipment and agreedto pay for it in five equal annual installments of $10,000 startingon the date of the purchase. Assuming that a prevailing annualinterest rate of 10% applies to this contract, how much shouldAdelphi record as the purchase cost of the equipment? (2 points)[This is a present value of annuity dueproblem]

d) Adelphi Corporation purchased a special conveyorsystem on January 1, 2016. The purchase agreement stipulated thatAdelphi should pay $15,000 at the time of purchase and $50,000 atthe end of each of the 5 years starting with 2016. The conveyorsystem should be recorded on January 1, 2016 at what amount,assuming an appropriate annual interest rate of 8%? (2 points)[This is a present value of ordinary annuityproblem]

e) Adelphi Corporation wants to withdraw $500,000 eachyear from an investment fund at the end of each of the next 9 yearsbeginning with 2016. What should be the required initial investmentat the beginning of 2016 if the fund earns 12% per year? (2 points)[This is a present value of ordinary annuityproblem]

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