Present and Future Value Computations

Required: 1. Compute the present value for each of the following situations, assuming an interest rate of 10% compounded annually. (Round amounts to the nearest dollar.) a. A single payment of $30,000 due on a mortgage five years from now.

b. A series of payments of $6,000 each, due at the end of each year for five years.

c A five-year, 10% loan of $25,000, with interest payable annually, and the principal due in five years

2. Compute the future value amounts (rounded to the nearest dollar) in each of the following situations: a. A $20,000 lump-sum investment today that will earn interest at 10% compounded annually over five years. b. A $8,000 lump-sum investment today that will earn interest at 8% compounded quarterly to provide money for a child's college education 15 years from now.

Computing the Amount of Periodic Payments Nathan Smith has just purchased a new car for $28,000. He paid $8,000 down and signed a note for the remaining $20,000. The interest rate on the note is 12% compounded monthly, or 1% per month.

Required:

1. Compute the amount of Mr. Smith's monthly payment if he plans to pay off the $20,000 note in 30 monthly payments. Remember: The interest rate is 1% per month 2. Repeat part (1) assuming that Mr. Smith wishes to repay the note in 60 monthly payments. 3. Assume that Mr. Smith decides to repay the note in 60 monthly payments. What is the balance remaining on the note immediately after he makes the 30th payment? Hint: Compute the present value of the remaining 30 payments.

Preparing Mortgage Amortization Schedule and Journal Entries for a Mortgage Note Payable

Stanley's Electronics issues a $800,000, 8%, 10-year mortgage note on December 31, 2016, to help finance a plant expansion program. The terms provide for annual installment payments, exclusive of real estate taxes and insurance, of $119,224. Payments are due on December 31.

Required:

1. Prepare an installment payments schedule for the first 4 years. 2. Prepare the entries for (1) the loan and (2) the first installment payments. 3. Show how the total mortgage liability should be reported on the balance sheet at December 31, 2017

Issuance Price of Bonds

Patterson Company issued 30-year bonds on June 30. The face value of the bonds was $750,000. The stated interest rate on the bonds was 6%. The market rate of interest at the time of issuance was 4% Patterson also issued another set of bonds on August 31, These bonds were 20-year bonds and had a face value of $556,000. The stated rate of interest on these bonds was 5%. The market rate of interest at the time these bonds were issued was 8%. Both sets of bonds pay interest semiannually.

Required: Calculate the issuance price of these bonds.