Two Situations The following situations involve the application of the time valu

Question

Two Situations The following situations involve the application of the time value of money concepts. Use the full factor when calculating your results. Use the appropriate present or future value table: FV of $1, PV of $1, FV of Annuity of $1 and PV of Annuity of $1 1. Sampson Company just purchased a piece of equipment with a value of $53,300. Sampson financed this purchase with a loan from the bank and must make annual loan payments of $13,000 at the end of each year for the next five years. Interest is compounded annually on the loan. What is the interest rate on the bank loan? Round your answer to the nearest whole number. 2. Simon Company needs to accumulate $200,000 to repay bonds due in six years. Simon estimates it can save $13,300 at the end of each semiannual period at a local bank offering an annual interest rate of 8% compounded semiannually. Calculate the amount accumulated at the end of six years. Round your answer to the nearest whole dollar. Will Simon have enough money saved at the end of six years to repay the bonds? No V

Explanation / Answer

2) Savings per semi-annual period 13300 Semi-annual Interest rate (8%/2) 4% Number of semi-annual periods (6*2) 12 Amount accumulated at the end of 6 years = $13300+ $13300*FVIFA @4%, 11 periods = $13300+$13300*14.0258 = $13300+186543 = $199843

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