Managerial Accounting: Creating Value in a Dynamic Business Environment
12th Edition
ISBN: 9781260417074
Author: HILTON, Ronald
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter II, Problem 5RQ
To determine
Introduction: Present value (PV) is the current value of a potential capital product or sequence of
If the interest rate is 10% a present value of $100 and a future value of $133.10 at the end of three years are economically equivalent.
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Students have asked these similar questions
2. Find the future value of OMR10,000 invested now after five
years if the annual interest rate is 8 percent.
a. What would be the future value if the interest rate is a
simple interest rate?
b. What would be the future value if the interest rate is a
compound interest rate?
Solve the questions below:
a. What is the future value of $1,750 in 3 years at an interest rate of 4 percent?
b. What is the future value of $1,750 in 3 years at an interest rate of 5 percent?
c. What is the future value of $1,750 in 3 years at an interest rate of 6 percent?
d. What is the present value of $2,350 in 5 years at an interest rate of 3 percent?
e. What is the present value of $2,350 in 5 years at an interest rate of 4 percent?
Given the following information, calculate the rate of return.
price = $501.88time to maturity = 10 yearsannual payment = $100type = ordinary annuity
Chapter II Solutions
Managerial Accounting: Creating Value in a Dynamic Business Environment
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- You are comparing two annuities. Annuity A pays $110 at the end of each year for 5 years. Annuity B pays $100 at the beginning of each year for 5 years. The rate of return on both annuities is 8 percent. Which one of the following statements is correct given this information? O Annuity B has both a higher present value and a higher future value than Annuity A. Annuity A has both a higher present value and a higher future value than Annuity B. O Annuity A has the same present value and future value as Annuity B.arrow_forwardIf the present value of $400 paid one year from now is $320, what is the one-year interest rate? (Note: this number is also known as the discount rate.)arrow_forwardWhat is the future value (at the end of 10 years) of an annuity that pays $700 a quarter over 10 years with the payments invested at 6.6% per annum (assume compounding matches payment periods, common assumption for such problems)? (enter your answer in the following format 123456.78) Answer:arrow_forward
- Compute the number of years (t) if future value (FV) = $5575, present value (FV) = $1812, and interest rate (r) = 9.1%,arrow_forwardAccording to the concepts underlying the present-value formula, would you prefer to receive (a) P75 one year from now, (b) P85 two years from now, or (c) P90 three years from now, if the relevant market interest rate is 10% and will remain at 10% for the next three years? a. The present values of all three choices are identical b. P75 one year from now c. P85 two years from now d. P90 three years from nowarrow_forward1. This problem relates to Future Value, and Future income streams. Assume continuous compounding of interest. (a) Find the present value of a single future payment of FV = $50,000 to be made 20 years from now, assuming an interest rate of 5 percent. (b) Suppose you want a future income stream (annual payments) of FV (t) = 500t for 20 years. Find the present value of this income stream, assuming an interest rate of 5 percent.arrow_forward
- You deposit $2X today, $3X one year from now and $3X two years from now. If there are different annual compounding interest rates per period as shown in the diagram below and if you had $19803 at the end of year 3, what is the value of X?arrow_forwardOutline the concept of present value. The interest rate is 7%. Use the concept of present value to compare the difference between €200 to be received in ten years time and €300 to be received in 20 years time. Problem 1: Assume the interest rate is 6%. In each of the following three cases, state which you would rather receive and briefly explain why: €200 today or €480 in two years? €205 today or €240 in one year? €1,000 in one year or €1,220 in two years? Problem 2: A company has an investment project that would cost €10 million today and yield a payoff of €15 million in four years. Should the firm undertake the project if the interest rate is 11%? 10%? 9%? 8%? Can you calculate the exact point at which the interest rate makes the difference between profitability and non-profitability? please make sure to fully explain the reasoning behindarrow_forwardCompute the interest rate if future value (FV) = $8011, present value (FV) = $2685, and number of years (t) = 6.arrow_forward
- What is the future value of $850 deposited for one year earning an 10 percent interest rate annually? (Do not round intermediate calculations. Enter your answer as a whole number.)arrow_forward3.12 Suppose the spot rates of interest for investment horizons of 1 to 5 years are 4%, and for 6 to 10 years are 5%. (c) Compute the future value of the annuity-immediate at the end of year 10, assuming future payments earn the forward rates of interest, using equation (3.18).arrow_forward(Computation of Future Values and Present Values) Using the appropriate interest table, answer each of the following questions. (Each case is independent of the others.)(a) What is the future value of $7,000 at the end of 5 periods at 8% compounded interest?(b) What is the present value of $7,000 due 8 periods hence, discounted at 6%?(c) What is the future value of 15 periodic payments of $7,000 each made at the end of each period and compounded at 10%?(d) What is the present value of $7,000 to be received at the end of each of 20 periods, discounted at 5% compound interest?arrow_forward
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