# Accounting Essay

964 Words4 Pages
4-5 Multiyear Future Value How much would be in your savings account in eight years after depositing \$150 today if the bank pays 8 percent per year? (LG4-3) FV8 = 150 × (1 + 0.07)8 150 × 1.71818618 Answer: 257.73 4-7 Compounding with Different Interest Rates A deposit of \$350 earns the following interest rates: a. 8 percent in the first year. b. 6 percent in the second year. c. 5 percent in the third year. What would be the third year future value? (LG4-3) FV = 350 × (1 + 0.08) (1 + 0.06) (1 + 0.05) 350 × 1.08 × 1.06 × 1.05 Answer: 420.71 4-8 Compounding with Different Interest Rates A deposit of \$750 earns interest rates of 10 percent in the first year and 12 percent in the second year. What would be the second year future value? (LG4-3) FV = 750 × (1 + 0.10) (1 + 0.12) 750 × 1.10 × 1.12 Answer: 924.00 4-11 Present Value What is the present value of a \$1,500 payment made in six years when the discount rate is 8 percent? (LG4-4) PV = 1500/(1+0.08)6 1500/1.586874323 Answer: 945.25 4-13 Present Value with Different Discount Rates Compute the present value of \$1,000 paid in three years using the following discount rates: 6 percent in the first year, 7 percent in the second year, and 8 percent in the third year. (LG4-4) PV = 1000 / ((1 + 0.06) (1 +0.07) (1 + 0.08)) 1000/ (1.06 × 1.07 × 1.08) 1000/1.224936 Answer: 816.37 4-16 Rule of 72 Approximately how many years are needed to double a \$500 investment when interest rates are 10 percent per year? (LG4-6) N=72 / 10 Answer: 7.2 4-31 Solving for Time How many years (and months) will it take \$2 million to grow to \$5 million with an annual interest rate of 7 percent? (LG4-8) \$5 million = \$2 million × (1 + 0.07)N (1.07)N = 5,000,000/2,000,000 LN (1.07)N = LN 2.5 N × LN 1.07 = LN2.5 N = LN 2.5/ LN 1.07 = 0.916290732/0.067658648 =