Certificate a Pays $1,000 in 4 Months and Another $1,000

question 144

Essay

Certificate A pays $1,000 in 4 months and another $1,000 in 8 months. Certificate B pays $1,000 in 5 months and another $1,000 in 9 months. If the current rate of return required on this type of investment certificate is 5.75%, determine the current value of each of the certificates. Give an explanation for the lower value of

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Definitions:

Fabricating Department

A division within a manufacturing company where raw materials are assembled or processed into finished goods.

FIFO Method

An inventory valuation method (First-In, First-Out) where the oldest items in inventory are sold or used first.

Equivalent Units

A concept in cost accounting used to allocate costs to partially completed goods, expressed in terms of full units of output.

Direct Materials

Materials that can be directly linked to the production process of a product and are essential components of the final product.