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21.doc-Accounting, 9e, Global Edition (Horngren) Chapter
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21.doc-Accounting, 9e, Global Edition (Horngren) Chapter
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21.doc-Accounting, 9e, Global Edition (Horngren) Chapter
Page 51
38) Jim wants to invest $5,000 at the end of each year for the next 10 years to prepare for his retirement.
He
believes he can earn 7% on his investments.
What will the value of his investment be at the end of 10 years?
Future Value
of an
Annuity of
$1
4%
5%
6%
7%
8%
9%
1
1.000
1.000
1.000
1.000
1.000
1.000
2
2.040
2.050
2.060
2.070
2.080
2.090
3
3.122
3.153
3.184
3.215
3.246
3.278
4
4.246
4.310
4.375
4.440
4.506
4.573
5
5.416
5.526
5.637
5.751
5.867
5.985
6
6.633
6.802
6.975
7.153
7.336
7.523
7
7.898
8.142
8.394
8.654
8.923
9.200
8
9.214
9.549
9.897
10.26
10.64
11.03
9
10.58
11.03
11.49
11.98
12.49
13.02
10
12.01
12.58
13.18
13.82
14.49
15.19
A) $61,060
B) $69,900
C) $62,650
D) $69,100
Answer:
D
Explanation:
D) Calculations: 13.82 × $5,000 = $69,100
Diff: 2
LO:
21-3
EOC Ref:
S21-8
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
51
Copyright © 2012 Pearson Education


Page 52
39) Wilhelmina has just received an inheritance of $50,000, and she would like to put it into an investment portfolio
for 8 years.
She believes she can earn 4% on the investment.
What will the value of the investment be at the end of
8 years?
Future
Value of
$1
4%
5%
6%
7%
8%
9%
1
1.040
1.050
1.060
1.070
1.080
1.090
2
1.082
1.103
1.124
1.145
1.166
1.188
3
1.125
1.158
1.191
1.225
1.260
1.295
4
1.170
1.216
1.262
1.311
1.360
1.412
5
1.217
1.276
1.338
1.403
1.469
1.539
6
1.265
1.340
1.419
1.501
1.587
1.677
7
1.316
1.407
1.504
1.606
1.714
1.828
8
1.369
1.477
1.594
1.718
1.851
1.993
9
1.423
1.551
1.689
1.838
1.999
2.172
10
1.480
1.629
1.791
1.967
2.159
2.367
A) $62,400
B) $59,670
C) $68,450
D) $69,220
Answer:
C
Explanation:
C) Calculations:
1.369 × $50,000 = $68,450
Diff: 2
LO:
21-3
EOC Ref:
S21-8
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
52
Copyright © 2012 Pearson Education


Page 53
40) Juan has just received a prize which entitles him to receive annual payments of $10,000 at the end of each year
for the next 10 years.
He would like to sell the rights to the prize money to a financial institution, so that he can
have the cash now.
In order to estimate the present value of the prize, he will use a discount rate of 5%.
What is the
present value of the prize?
Present Value of
an Annuity of $1
5%
6%
7%
8%
9%
10%
1
0.952
0.943
0.935
0.926
0.917
0.909
2
1.859
1.833
1.808
1.783
1.759
1.736
3
2.723
2.673
2.624
2.577
2.531
2.487
4
3.546
3.465
3.387
3.312
3.240
3.170
5
4.329
4.212
4.100
3.993
3.890
3.791
6
5.076
4.917
4.767
4.623
4.486
4.355
7
5.786
5.582
5.389
5.206
5.033
4.868
8
6.463
6.210
5.971
5.747
5.535
5.335
9
7.108
6.802
6.515
6.247
5.995
5.759
10
7.722
7.360
7.024
6.710
6.418
6.145
A) $61,450
B) $71,080
C) $77,220
D) $71,080
Answer:
C
Explanation:
C) Calculations:
7.722 × $10,000 = $77,220
Diff: 2
LO:
21-3
EOC Ref:
S21-7
AACSB:
Analytic Skills
AICPA Business:
Critical Thinking
AICPA Functional:
Measurement
53
Copyright © 2012 Pearson Education


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