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Chapter 12: Q15SE (page 658)

Determining future value

David is entering high school and is determined to save money for college. David feels

he can save $5,000 each year for the next four years from his part-time job. If David is

able to invest at 6%, how much will he have when he starts college?

Short Answer

Expert verified

David will have $21,875 when he starts college.

Step by step solution

01

Definition of future value

The future value is the valuation of the current investment at future date.

02

Calculation of future value

Future鈥�Value=鈥�Period鈥夆赌�Payments鈥�脳鈥�Future鈥�value鈥�of鈥�ordinary鈥�annuity鈥�of鈥�$1=$5,000脳鈥�4.375=鈥�$21,875

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Most popular questions from this chapter

Determine whether the following bonds payable will be issued at face value, at a premium, or at a discount:

3. A 10% bonds payable is issued when the market interest rate is 8%.

4. A 10% bonds payable is issued when the market interest rate is 10%.

5. A 10% bonds payable is issued when the market interest rate is 12%.

When a bond is issued, what is its present value?

Determining bond prices and interest expense

Jones Company is planning to issue $490,000 of 9%, five-year bonds payable to

borrow for a major expansion. The owner, Shane Jones, asks your advice on some

related matters.

Requirements

1. Answer the following questions:

a. At what type of bond price Jones Company will have total interest expense

equal to the cash interest payments?

b. Under which type of bond price will Jones Company鈥檚 total interest expense be

greater than the cash interest payments?

c. If the market interest rate is 12%, what type of bond price can Jones Company

expect for the bonds?

2. Compute the price of the bonds if the bonds are issued at 89.

3. How much will Jones Company pay in interest each year? How much will Jones

Company鈥檚 interest expense be for the first year?

Determining the present value of bonds payable

Interest rates determine the present value of future amounts. (Round to the nearest

dollar.)

Requirements

1. Determine the present value of 10-year bonds payable with face value of $86,000

and stated interest rate of 14%, paid semiannually. The market rate of interest is

14% at issuance.

2. Same bonds payable as in Requirement 1, but the market interest rate is 16%.

3. Same bonds payable as in Requirement 1, but the market interest rate is 12%.

Payne Corporation has the folowing accounts as of December 31, 2018:

Total Assets $60,000

Total Liabilities 20,000

Total Equity 40,000

Compute the debt to equity ratio at December 31,2018.
See all solutions

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