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ACC421 Week5 E6-2 E6-5 E6-6 E6-8 E6-10 Wiley Plus

E6-2 (Simple and Compound Interest Computations) Lyle O’Keefe invests $30,000 at 8% annual interest, leaving the money invested without withdrawing any of the interest for 8 years. At the end of the 8 years, Lyle withdrew the accumulated amount of money.

Instructions

(a) Compute the amount Lyle would withdraw assuming the investment earns simple interest.

(b) Compute the amount Lyle would withdraw assuming the investment earns interest compounded

annually.

(c) Compute the amount Lyle would withdraw assuming the investment earns interest compounded

semiannually.

E6-5 (Computation of Present Value) Using the appropriate interest table, compute the present values of the periodic amounts, shown on page 344, due at the end of the designated periods.

(a) $50,000 receivable at the end of each period for 8 periods compounded at 12%.

(b) $50,000 payments to be made at the end of each period for 16 periods at 9%.

(c) $50,000 payable at the end of the seventh, eighth, ninth, and tenth periods at 12%.

E6-6 (Future Value and Present Value Problems) Presented below are three unrelated situations.

(a) Ron Stein Company recently signed a lease for a new office building, for a lease period of 10 years.

Under the lease agreement, a security deposit of $12,000 is made, with the deposit to be returned at

the expiration of the lease, with interest compounded at 10% per year. What amount will the company

receive at the time the lease expires?

(b) Kate Greenway Corporation, having recently issued a $20 million, 15-year bond issue, is committed

to make annual sinking fund deposits of $620,000. The deposits are made on the last day of each

year and yield a return of 10%. Will the fund at the end of 15 years be sufficient to retire the bonds?

If not, what will the deficiency be?

(c) Under the terms of his salary agreement, president Juan Rivera has an option of receiving either an

immediate bonus of $40,000, or a deferred bonus of $75,000 payable in 10 years. Ignoring tax considerations, and assuming a relevant interest rate of 8%, which form of settlement should Rivera accept?

E6-8 (Computations for a Retirement Fund) Stephen Bosworth, a super salesman contemplating retirement on his fifty-fifth birthday, decides to create a fund on an 8% basis that will enable him to withdraw $25,000 per year on June 30, beginning in 2016 and continuing through 2019. To develop this fund, Stephen intends to make equal contributions on June 30 of each of the years 2012–2015.

Instructions

(a) How much must the balance of the fund equal on June 30, 2015, in order for Stephen Bosworth to

satisfy his objective?

(b) What are each of Stephen’s contributions to the fund?

E6-10 (Unknown Periods and Unknown Interest Rate) Consider the following independent situations.

(a) Mark Yoders wishes to become a millionaire. His money market fund has a balance of $148,644 and has a guaranteed interest rate of 10%. How many years must Mark leave that balance in the fund in

order to get his desired $1,000,000?

(b) Assume that Elvira Lehman desires to accumulate $1 million in 15 years using her money market

fund balance of $239,392. At what interest rate must Elvira’s investment compound annually?

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