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?

Required 1 Required 2 Required 3 John Jamison wants to accumulate $79,881 for a account paying 8% interest compounded annually intermediate calculations. Round the value of "n" Present Value: n = i = Future Value

Answer 1

Solution 1:

Future value = $79,881

Initial investment = $37,000

Interest rate = 8%

Let it will take n year to reach the goal

Now

$37,000 (1+0.08)^n = $79,881

(1.08)^n = 2.15895

on solving,

n = 10 years

Solution 2:

Present value = $48,755

Let interest rate = i

$9,000 * Cumulative PV factor at i for 6 periods = $48,755

Cumulative PV factor at i for 6 periods = 5.4172

refer PV factor table, this factor falls at i = 3%

Solution 3:

Annual payment amount = $23,000 / Cumulative PV factor at 9% for 15 periods

= $23,000 / 8.06069 = $2,853