# Answer the following five questions related to the time value of money. The interest rate is 8 percent per year and the number of periods is 5 years for all of the scenarios:

###### (TCO 10) John exchanged an old asset with an \$18,000 adjusted basis plus \$2,000 for a new asset with a \$32,000
February 12, 2020
###### (TCO 10) X-Temp Inc. incurred \$275,000 research costs on the development of its formula for a new line of face
February 12, 2020

Answer the following five questions related to the time value of money. The interest rate is 8 percent per year and the number of periods is 5 years for all of the scenarios:

A. Assume the interest rate is 8 percent per year and the future value desired five years from now is \$20,000. What is the present value needed right now to grow to this amount?

B. How much must be invested at the end of each year (i.e., present value of ordinary annuity) to have a \$20,000 future value at the end of 5 years. Again, assume interest rate is 8 percent per year.

C. Assume you have \$5,000 right now. What is the future value of this single sum after 5 years if you invest the \$5,000 at 8 percent per year for 5 years.

D. Assume you invest \$1,000 at the end of each year for 5 years. Again, the annual interest rate is 8 percent. What is the future value of this ordinary annuity?

E. What is an annuity? Explain the difference between an ordinary annuityand an annuity due.

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