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Accounting 2200 Homework Worksheet #4 Name____________________________ 1. If $150 were invested today, how large a sum could be withdrawn at the end of the following time periods at the following compound interest rates? Complete the following table: Time period (years) Compound interest rates 5 10 15 5% 10% 15% 2. Compute the present value of $10,000 received at the end of the following time periods at the following discount rates. Complete the following table: Time period (years) Compound interest rates 5 10 15 5% 10% 15% 3. Compute the present value of the payment patterns provided below, given an 8% discount rate: a. $50 at the end of year 2, $100 at the end of year 5, $80 at the end of Year 8 Year Amount PV Factor 2 50 0.8573 5 100 0.6806 8 80 0.5403 b. $100 at the end of years 1, 2, 3, 4; $100 at the end of year 8 Year Amount PV Factor Present Value 1 100 0.9259 92.59 2 100 0.8573 85.73 3 100 0.7938 79.38 4 100 0.7350 73.50 8 100 0.5403 54.03 c. $90 at the end of years 7, 8, 9 Year Amount PV Factor Present Value 7 90 0.5835 8 90 0.5403 9 90 0.5002 4. a. What is the value on January 1, 2013 of $10,000 deposited on January 1, 2006 which accumulates interest at 16% compounded annually? b. What is the value on January 1, 2013 of $10,000 deposited on January 1, 2006 which accumulates interest at 16% compounded semi-annually? 5. Able Co. issued a 6 year $100,000 bond with a stated rate of 8%. Interest payments are made semiannually. The market rate (or effective rate) for these bonds is 12%. Calculate the proceeds on the bond. Is this bond going to sell at a premium or discount? Show the journal entries for the first year of the bond. Journal entries Cash Bonds Payable Discount or Premium on Bond 83,235.20 4,000 100,000 16,764.80 1397.07 4,000 1397.07 Interest Expense ___ 5,397.07 5,397.07 6. Lawrence Co., issued a 3 year $20,000 par value bond at a stated rate of 6%. Interest payments are made annually. The effective rate (market rate) for these bonds is 4%. Calculate the proceeds on the bond. Is this bond going to sell at a premium or discount? Show the journal entries for the life of the bond. Journal entries Cash Bonds Payable Discount or Premium on Bond 105,550.60 6,000 100,000 1,850.2 5,550.60 6,000 1,850.2 6,000 1,850.2 Interest Expense ___ 4149.80 4149.80 4149.80

Accounting 2200 Homework Worksheet #4

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