Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881



Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem

Future Values and Long-Term Investments

Portman Corporation engaged in the following transactions during 2020:

a. On January 1, 2020, Portman deposited $12,000 in a certificate of deposit paying 6% interest compounded semiannually (3% per 6-month period). The certificate will mature on December 31, 2023

b. On January 1, 2020, Portman established an account with Lee County Bank. Portman will make quarterly payments of $2,500 to Lee beginning on March 31, 2020, and ending on December 31, 2021. Lee guarantees an interest rate of 8% compounded quarterly (2% per 3-month period).


1. Prepare the cash flow diagram for each of these two investments.

2. Calculate the amount to which each of these investments will accumulate at maturity. (Note: Round answers to two decimal places.)

To determine



The future value of amount includes the compound interest and the initial cash flow. It considers the time value of money.

To prepare:

Cash Flow for investments.


a. Investment Date = January 1, 2020

Cashflow = $12,000

Interest = 6% p.a.

Maturity Date = December 31, 2023

No. of years = 4

Compounded semi-annually,

No. of periods = 8

Semi-annual Interest Rate = 3%


To determine



Investment in debt security (available for sale securities and trading securities) as well as equity securities is recorded using Fair Value Method.

To calculate:

The value of investment at maturity.

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