Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 6: Question 5BE (page 302)

Sally Medavoy will invest $8,000 a year for 20 years in a fund that will earn 6% annual interest. If the first payment into the fund occurs today, what amount will be in the fund in 20 years? If the first payment occurs at year-end, what amount will be in the fund in 20 years?

Short Answer

Expert verified

The amount of funds in 20 years if the first payment occurs today will be $31,1942, and the amount of funds in 20 years if the first payment at the year-end will be $294,285

Step by step solution

01

Calculation of the amount of the fund in 20 years if the first payment occurs today

FV-AD=R(FVF-ADn,i)=8,000×38.99275=$311,942

02

Calculation of the amount of the fund in 20 years if the first payment at the year-end

FV-AD=R(FVF-OAn,i)=8,000×36.7855=$294,285

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

During the past year, Stacy McGill planted a new vineyard on 150 acres of land that she leases for \(30,000 a year. She has asked you, as her accountant, to assist her in determining the value of her vineyard operation.

The vineyard will bear no grapes for the first 5 years (1–5). In the next 5 years (6–10), Stacy estimates that the vines will bear grapes that can be sold for \)60,000 each year. For the next 20 years (11–30), she expects the harvest will provide annual revenues of \(110,000. But during the last 10 years (31–40) of the vineyard’s life, she estimates that revenues will decline to \)80,000 per year.

During the first 5 years, the annual cost of pruning, fertilizing, and caring for the vineyard is estimated at \(9,000; during the years of production, 6–40, these costs will rise to \)12,000 per year. The relevant market rate of interest for the entire period is 6%. Assume that all receipts and payments are made at the end of each year.

Instructions Dick Button has offered to buy Stacy’s vineyard business by assuming the 40-year lease. On the basis of the current value of the business, what is the minimum price Stacy should accept?

Question: Explain how the future value of an ordinary annuity interest table is converted to the future value of an annuity due interest table.

Candice Willis will invest \(30,000 today. She needs \)150,000 in 21 years. What annual interest rate must she earn?

Hincapie Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company’s bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $2,000,000 of 11% term corporate bonds on March 1, 2017, due on March 1, 2032, with interest payable each March 1 and September 1. At the time of issuance, the market interest rate for similar financial instruments is 10%. Instructions As the controller of the company, determine the selling price of the bonds

Using the appropriate interest table, answer the following questions. (Each case is independent of the others). (a) What is the future value of 20 periodic payments of \(4,000 each made at the beginning of each period and compounded at 8%? (b) What is the present value of \)2,500 to be received at the beginning of each of 30 periods, discounted at 5% compound interest? (c) What is the future value of 15 deposits of \(2,000 each made at the beginning of each period and compounded at 10%? (Future value as of the end of the fifteenth period.) (d) What is the present value of six receipts of \)1,000 each received at the beginning of each period, discounted at 9% compounded interest?
See all solutions

Recommended explanations on Business Studies Textbooks

Financial Performance

Read Explanation

Business Development

Read Explanation

Organizational Communication

Read Explanation

Nature of Business

Read Explanation

Operational Management

Read Explanation

Change Management

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