Question

The following situations should be considered independently. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. John Jamison wants to accumulate $79,881 for a down payment on a small business. He will invest $37.000 today in a bank account paying 8% interest compounded annually. Approximately how long will it take John to reach his goal? 2. The Jasmine Tea Company purchased merchandise from a supplier for $48,755. Payment was a noninterest-bearing note requiring Jasmine to make six annual payments of $9,000 beginning one year from the date of purchase. What is the interest rate implicit in this agreement? 3. Sam Robinson borrowed $23,000 from a friend and promised to pay the loan in 15 equal annual installments beginning one year from the date of the loan. Sam's friend would like to be reimbursed for the time value of money at a 9% annual rate. What is the annual payment Sam must make to pay back his friend? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 John Jamison wants to accumulate $79,881 for a down payment on a small business. He will invest $37,000 today in a bank account paying 8% interest compounded annually. Approximately how long will it take John to reach his goal? (Do not round intermediate calculations. Round the value of "n" to the nearest whole number.) Present Value: Future Value

Answer 1

1) Present value (PV): $37.000 10 8% $79.881 i= Future Value (FV) Workings: FV = PV*(1 + i) 'n $79,881 = $37,000 *(1 + 0.08) 'n Solving this equation: (579,881/$37.000) = (1.08) 'n 2.1589459 = (1.08) 'n (1.08) 10 = (1.08) 'n n= 10 years 2) Present value (PV): $48.755 i= 3% $9.000 Annuity Payment Workings: Annuity Factor = Present value of the annuity / Annuity amount = $48,755 / $9.000 = 5.41722222 Use PVIFA table where in year 6 we could find 5.41722 So interest rate of 3% 3) Table or calculator function: PVAD of $1 Present value (PV): $23,000 n= 15 9% Annuity installment $2,853 Workings: Annuity Factor Present value of the annuity / Annuity amount 8.0607= $23,000/ Annuity amount Annuity amount = $23,000/ 8.0607 $2.853