31. The market price of a bond is equal to its present value.
32. An annuity due assumes the cash flow will occur at the beginning of the period.
33. The rate of interest is usually expressed as an annual rate.
34. An interest rate of 12% a year is the same as 6% for 2 months.
35. The obligation for deferred income taxes is the only long-term liability that is not reported at its present value.
36. As the discount rate required by an investor increases, the present value of an investment decreases.
Essay Questions
37. Use the tables to determine the answers to the following:
(1) How much must be invested now for 5 periods at 6% to amount to $15,000?
(2) How much is $3,000 invested now at 8% in 8 periods worth?
(3) How much is $25,000 compounded quarterly at 12% for 4 years?
38. Joan is 75 years old and wishes to retire. She needs to have $48,000 a year plus her social security to live in the style she is accustomed to. She would like to have enough money in her retirement account which earns 5% compounded annually to support her for the next 15 years. How much must be in the fund if she takes the first payment at year-end?