Principles of Accounting
12th Edition
ISBN: 9781133626985
Author: Belverd E. Needles, Marian Powers, Susan V. Crosson
Publisher: Cengage Learning
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Chapter 11, Problem 11EA
To determine
Calculate the present value of the contract by assuming the given values.
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The payments required on a contractual obligation are $800 per month. The contract was purchased for $9,250 just before a regular payment date. The purchaser determined this price based on a required rate of return of 4.3% compounded monthly.
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12 payments
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1. A contract calls for a lump-sum payment of $15,000. Find the present value of the contract assuming. When making these calculations, you need to use a present value factor that is carried to three decimal places to get the correct answers.
a. The payment is due in five years, and the current interest rate is 9 percent. Your answer should contain a dollar sign.b. The payment is due in ten years and the current interest rate is 5 percent. Your answer should contain a dollar sign.c. Between the two calculations, A and B, which option is the best option for the person receiving the payment? State in a full sentence why you chose this option.
A contract valued at ₱24540 requires payment of ₱1283 at the end of every three months. If interest is 8.64% compounded quarterly, for how many years is the term of the contract?
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- A contract will pay you $5000 per year every other year for the next 30 years. That is, since today is time 0, the contract will pay you $5000 in year 2, 4, 6. 28, 30. The discount rate is 8% compounded semiannually. What is the present value of this contract?arrow_forwardSuppose you take a 3/1 interest - only, 30-year ARM for $140,000.00 with an interest - only contract rate of 5% and a following rate of 7% in year 4. Assume you pay 1 discount points. Suppose that the contract rate in year 5 is 7.25% and this contract rate stays constant from years 5 through 30. What is the APR?arrow_forwardan agreement stipulates payments of $4500, $3000, and $5500 in 4,8, and 12 months , respectively from today what is the highest price an investor will offer today to purchase the agreement if he requires a minimum rate it return of 10.5%arrow_forward
- A contract can be fullfilled by making an immediate payment of $5564, or equal payments at the end of every month for 8 years. what is the size of the monthly payments at 9% per annum compounded quarterly?arrow_forwardYou are offered a $3,000,000 contract to be paid to you over 6 years at $500,000 per year. The first payment will be made at the end of the year. If the current market interest rate is 3.5%, what is the contract really worth to you? $2,500,000.00 $3,275,076.09 $2,664,276.51 $3,000,000.00arrow_forwardA leasing contract calls for an immediate payment of $101,000 and nine subsequent $101,000 semiannual payments at six-month intervals. What is the PV of these payments if the annual discount rate is 9%? (Hint: First find the semiannual rate that is equivalent to the annual rate.)arrow_forward
- What is the equivalent annual cost in years 1 through 11 of a contract that has a first cost of $79,000 in year 0 and annual costs of $18,000 in years 3 through 11? Use an interest rate of 11% per year. The equivalent annual cost is determined to be $arrow_forwardA person contracts two obligations of $ 10,000.00 and $ 15,000.00 that will be paid, the first within 3 months and the second within 9 months. The debtor proposes to the creditor to pay the debt as follows: $ 8,000.00 within 6 months of having contracted the obligations and the balance within 1 year. How much will you have to pay at the end of the year to pay off the debt? consider a 12% annual interest rate.arrow_forwardA contract requires lease payments of $700 at the beginning of every month for 4 years. a. what is the present value of the contract if the lease rate is 6.39% compounded annually? b .what is the present valaue of the contract if the lease rate is 6.39 % compounded daily? [ i need a and b]arrow_forward
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