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Problem Solving Survival Guide to accompany Financial Accounting, 8th Edition by Donald E. Kieso, Paul D. Kimmel, Jerry J. Weygandt

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EXERCISE D-4

Purpose: (L.O. 8) This exercise will give you practice in using a financial calculator to solve problems involving the time value of money.

Interest is the cost of using the money of another entity. Each of the following two situations calls for you to compute the interest rate inherent in a set of facts.

  1. Jacob Dobrofsky wishes to invest $19,000 on July 1, 2014, and have it accumulate to $49,000 by July 1, 2024.

    Instructions:

    Use a financial calculator to determine at what exact annual rate of interest Jacob must invest the $19,000.

  2. On July 17, 2013, Elizabeth Dobrofsky borrowed $42,000 from her grandfather to open a clothing store. Starting July 17, 2014, Elizabeth has to make ten equal annual payments of $6,500 to repay the loan.

Instructions:

Use a financial calculator to determine what interest rate Elizabeth is paying.

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