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Chapter 6: Question 11BE (page 302)
Leon Tyler鈥檚 VISA balance is \(793.15. He may pay it off in 12 equal end-of-month payments of \)75 each. What interest rate is Leon paying?
The interest rate that Leon should be paying will be 2%.
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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:Assume the same situation as in Question 11, except that the four equal amounts are deposited at the beginning of the period rather than at the end. In this case, what amount must be deposited at the beginning of each period? (Round to two decimals.)
For each of the following cases, indicate (a) to what rate columns, and (b) to what number of periods you would refer in looking up the interest factor.
1. In a future value of 1 table Annual Number of Rate Years Invested Compounded
a. 9% 9 Annually b. 12% 5 Quarterly c. 10% 15 Semiannually
2. In a present value of an annuity of 1 table Annual Number of Number of Frequency of Rate Years Involved Rents Involved Rents
a. 9% 25 25 Annually b. 10% 15 30 Semiannually c. 12% 7 28 Quarterly
Question:What are the primary characteristics of an annuity? Differentiate between an 鈥渙rdinary annuity鈥� and an 鈥渁nnuity due.鈥�
Question: Kehoe, Inc. owes $40,000 to Ritter Company. How much would Kehoe have to pay each year if the debt is retired through four equal payments (made at the end of the year), given an interest rate on the debt of 12%? (Round to two decimal places.)
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