Financial Accounting: Information for Decisions
9th Edition
ISBN: 9781260158809
Author: Wild, John
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Question
Chapter B, Problem 1QS
Summary Introduction
Concept Introduction:
Future value is the value of present money after a period of time. Future value of present money is calculated using the interest rate and period. The present value of a sum is multiplied with the future value factor to get the future value.
To identify: the interest rate column and number of period.
Expert Solution & Answer
Explanation of Solution
Rate | Interest rate | Number of period | |
12% annual rate, compounded annually | 12% | 1 | The compounding is annual, hence the rate shall remain same and period shall be 1. |
6% annual rate, compounded semiannually | 3% | 2 | The compounding is semiannual, hence the rate shall be half and period shall be double. |
8% annual rate, compounded quarterly | 2% | 4 | The compounding is quarterly, hence the rate shall be one fourth and period shall be four times. |
12% annual rate, compounded monthly | 1% | 12 | The compounding is monthly, hence the rate shall be divided by 12 and period shall be multiplied by 12. |
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Students have asked these similar questions
For each of the following cases, indicate (a) to what rate columns, and (b) to what number of periods you would refer in looking up the interest factor.1. In a future value of 1 table:
Annual Rate
Number of Years Invested
Compounded
(a) Rate of Interest
(b) Number of Periods
a.
11%
10
Annually
%
b.
8%
8
Quarterly
%
c.
10%
19
Semiannually
%
2. In a present value of an annuity of 1 table: (Round answers to 1 decimal place, e.g. 458,58.1.)
Annual Rate
Number of Years Invested
Number of Rents Involved
Frequency of Rents
(a) Rate of Interest
(b) Number of Periods
a.
12%
30
30
Annually
%
b.
11%
16
32
Semiannually
%
c.
12%
8
32
Quarterly
%
For each of the following cases, indicate (a) to what rate columns, and (b) to what number of periods you would refer in looking up the
interest factor.
1. In a future value of 1 table:
Annual
Rate
Number of Years
Invested
Compounded
(a) Rate of Interest
a.
9%
12
Annually
b.
8%
7
Quarterly
C.
12%
16
Semiannually
%
%
%
(b) Number of Periods
2. In a present value of an annuity of 1 table: (Round "Rate of Interest" answers to 1 decimal place, e.g. 4.5% and other answers to O decimal
places, e.g 45.)
Annual
Number of
Years
Rate
Invested
Number of
Rents
Involved
Frequency of
Rents
(a) Rate of Interest
(b) Number of Periods
a.
10%
28
28
Annually
b.
10%
15
30
Semiannually
%
%
8%
7
28
Quarterly
%
For each of the following situations involving annulties, solve for the unknown. Assume that interest is compounded annually and that
all annulty amounts are received at the end of each period. (/= Interest rate, and n = number of years)
Note: Use tables, Excel, or a financial calculator. Round your final answers to nearest whole dollar amount. (FV of $1, PV of $1, FVA
of $1, PVA of $1, FVAD of $1 and PVAD of $1)
1.
2.
3.
4.
5.
Present Value
248, 196
442,750
650,000
175,000
Annuity Amount
$
5,000
80,000
60,000
155,040
8%
11%
10%
n =
5
4
10
4
Chapter B Solutions
Financial Accounting: Information for Decisions
Knowledge Booster
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