The Solution to This Problem Requires Time Value of Money

question 47

Multiple Choice

The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
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Josh and Sara want to buy a house in four years.If the house will cost $180,000,how much must they deposit at the end of every year for the next four years at 5% compounded annually in order to buy the house?

• A)$32,040
• B)$36,990
• C)$41,763
• D)$45,000

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Definitions:

Financing Activity

Transactions related to raising or repaying capital, including debt, equity, and dividends payments, reported in the cash flow statement.

Investing Activity

Transactions involving the purchase or sale of long-term assets and investments, not relating directly to the entity’s primary business activities.

Cash Equivalent

Short-term, highly liquid investments that can be readily converted to cash with insignificant risk of changes in value.

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.