Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 6: Question 10E (page 304)

Consider the following independent situations. (a) Mike Finley wishes to become a millionaire. His money market fund has a balance of \(92,296 and has a guaranteed interest rate of 10%. How many years must Mike leave that balance in the fund in order to get his desired \)1,000,000? (b) Assume that Sally Williams desires to accumulate \(1 million in 15 years using her money market fund balance of \)182,696. At what interest rate must Sally’s investment compound annually?

Short Answer

Expert verified

The period required for Mike is 25 years, and the interest rate required for Sally will be 12%.

Step by step solution

01

Calculation of the number of years

Futurevalueof$1=DesiredamountMoneymarketfundbalance=100,00092,296=10.83471

The future value of $1 is 10.83471 at 10% for25 years, per the table

02

Calculation of the interest rate

Futurevalueof$1=DesiredamountMoneymarketfundbalance=100,000182,696=5.47357

The future value of $1 is 5.47357 for 15 years for an interest rate of12%, per the table

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Tony Bautista needs $25,000 in 4 years. What amount must he invest today if his investment earns 12% compounded annually? What amount must he invest if his investment earns 12% annual interest compounded quarterly?

Answer each of these unrelated questions.

(a) On January 1, 2017, Fishbone Corporation sold a building that cost \(250,000 and that had accumulated depreciation of \)100,000 on the date of sale. Fishbone received as consideration a \(240,000 non-interest-bearing note due on January 1, 2020. There was no established exchange price for the building, and the note had no ready market. The prevailing rate of interest for a note of this type on January 1, 2017, was 9%. At what amount should the gain from the sale of the building be reported?

(b) On January 1, 2017, Fishbone Corporation purchased 300 of the \)1,000 face value, 9%, 10-year bonds of Walters Inc. The bonds mature on January 1, 2027, and pay interest annually beginning January 1, 2018. Fishbone purchased the bonds to yield 11%. How much did Fishbone pay for the bonds?

(c) Fishbone Corporation bought a new machine and agreed to pay for it in equal annual installments of \(4,000 at the end of each of the next 10 years. Assuming that a prevailing interest rate of 8% applies to this contract, how much should Fishbone record as the cost of the machine?

(d) Fishbone Corporation purchased a special tractor on December 31, 2017. The purchase agreement stipulated that Fishbone should pay \)20,000 at the time of purchase and \(5,000 at the end of each of the next 8 years. The tractor should be recorded on December 31, 2017, at what amount, assuming an appropriate interest rate of 12%?

(e) Fishbone Corporation wants to withdraw \)120,000 (including principal) from an investment fund at the end of each year for 9 years. What should be the required initial investment at the beginning of the first year if the fund earns 11%?

Question:What is the nature of interest? Distinguish between “simple interest” and “compound interest.”

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?

Question:Identify three situations in which accounting measures are based on present values. Do these present value applications involve single sums or annuities, or both single sums and annuities? Explain.
See all solutions

Recommended explanations on Business Studies Textbooks

Operational Management

Read Explanation

Introduction to Business

Read Explanation

Business Development

Read Explanation

Strategic Direction

Read Explanation

Nature of Business

Read Explanation

Managers

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free