Assume that you have the opportunity to receive $7,000 at the end of each of the next seven years. Given an interest rate of 7%, how much would you be willing to pay for this investment today? Use the present value of an ordinary annuity interest factor table shown below. Excerpt from present value of an ordinary annuity interest factor table \[\begin{array} { | c | c | c | c | c | c | } \hline \text { Periods } & \mathbf { 6 \% } & \mathbf { 7 \% } & \mathbf { 8 \% } & \mathbf { 9 \% } & \mathbf { 1 0 \% } \\ \hline 1 & 0.94340 & 0.93458 & 0.92593 & 0.91743 & 0.90909 \\ \hline 2 & 1.83339 & 1.80802 & 1.78326 & 1.75911 & 1.73554 \\ \hline 3 & 2.67301 & 2.62432 & 2.57710 & 2.53129 & 2.48685 \\ \hline 4 & 3.46511 & 3.38721 & 3.31213 & 3.23972 & 3.16987 \\ \hline 5 & 4.21236 & 4.10020 & 3.99271 & 3.88965 & 3.79079 \\ \hline 6 & 4.91732 & 4.76654 & 4.62288 & 4.48592 & 4.35526 \\ \hline 7 & 5.58238 & 5.38929 & 5.20637 & 5.03295 & 4.86842 \\ \hline \end{array}\]

A) $33,366 B) $36,445 C) $37,725 D) $41,799 A) $33,366 B) $36,445 C) $37,725 D) $41,799

Exam 7: Accounting and the Time Value of Money

Assume that you have the opportunity to receive $7,000 at the end of each of the next seven years. Given an interest rate of 7%, how much would you be willing to pay for this investment today? Use the present value of an ordinary annuity interest factor table shown below. Excerpt from present value of an ordinary annuity interest factor table Periods 1 0.94340 0.93458 0.92593 0.91743 0.90909 2 1.83339 1.80802 1.78326 1.75911 1.73554 3 2.67301 2.62432 2.57710 2.53129 2.48685 4 3.46511 3.38721 3.31213 3.23972 3.16987 5 4.21236 4.10020 3.99271 3.88965 3.79079 6 4.91732 4.76654 4.62288 4.48592 4.35526 7 5.58238 5.38929 5.20637 5.03295 4.86842

(Multiple Choice)

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Question 61

A present value is always less than the corresponding future value.

(True/False)

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Question 62

What is the primary difference between an ordinary annuity and an annuity due?

(Multiple Choice)

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Question 63

A specific future value of an ordinary annuity factor for a given number of periods and a specific discount rate is equal to the cumulative sum of the future value of single sum factors over the given number of periods for that discount rate.

(True/False)

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Question 64

Interest calculated on the original principal regardless of the amount of interest that has been paid or accrued in the past is ________.

(Multiple Choice)

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Question 65

Future value factors are determined by two characteristics: the interest rate per compounding period and the number of compounding periods.

(True/False)

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Question 66

You have just won the Multi-State Lottery. You have the option of receiving a check for $40,000,000 every year at the end of the next 23 years. The lottery commission also allows you the option of receiving a one-time payment of $414,842,358 when you turn in the winning ticket. What is the approximate interest rate that the lottery commission is using to determine the one-time payment? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest percent, X%.)

(Multiple Choice)

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Question 67

Jenks Company financed the purchase of a machine by paying $37,000 a year for the next five years, with the first payment due one year from today. The purchase cost of the machine is considered to be the present value of those payments. What was the purchase cost of the machine to Jenks assuming a discount rate of 7%? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)

(Multiple Choice)

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Question 68

The future amount of an annuity due is determined ________.

(Multiple Choice)

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Question 69

You are provided with two time value of money tables. One is a present value of $1 table and one is a future value of $1 table. How can you tell which table is which type?

(Essay)

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Question 70

An example of a deferred annuity is payments for ________.

(Multiple Choice)

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Question 71

You decide to deposit $2,000 at a local bank for two years at a 8% rate of interest compounded annually. What is the future value of your investment? (Do not round any intermediary calculations, and round your final answer to the nearest dollar.) Use the formula approach.

(Multiple Choice)

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Question 72

Annie Laerz wants to invest $20,000 on January 1, 2014, so that she may withdraw 10 annual payments of equal amounts beginning January 1, 2029. If the fund earns 6% annual interest over its life, what will be the amount of each of the withdrawals? (Use spreadsheet software or a financial calculator to calculate your answer. Round intermediary calculations two decimal places and round your final answer to the nearest dollar.)

(Multiple Choice)

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Question 73

The relationship between the future value of a single sum and the corresponding present value of a single sum is determined by the interest rate per compounding period and ________.

(Multiple Choice)

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Question 74

Compound interest is computed on both the principal and on the accumulated interest.

(True/False)

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Question 75

With an annuity due, a payment is made or received on the date the agreement begins.

(True/False)

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Question 76

Bangin Inc. financed the purchase of a machine by making ten annual payments of $19,000 with the first payment due today. The purchase cost of the machine is considered to be the present value of those payments. What was the purchase cost of the machine to Bangin assuming a discount rate of 9%? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)

(Multiple Choice)

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Question 77

What is the time value of money?

(Essay)

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Question 78

Why do accountants need to be familiar with present value concepts?

(Essay)

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Question 79

A future value is always less than the corresponding present value.

(True/False)

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Question 80

Showing 61 - 80 of 117

A present value is always less than the corresponding future value.

What is the primary difference between an ordinary annuity and an annuity due?

A specific future value of an ordinary annuity factor for a given number of periods and a specific discount rate is equal to the cumulative sum of the future value of single sum factors over the given number of periods for that discount rate.

Interest calculated on the original principal regardless of the amount of interest that has been paid or accrued in the past is ________.

Future value factors are determined by two characteristics: the interest rate per compounding period and the number of compounding periods.

The future amount of an annuity due is determined ________.

You are provided with two time value of money tables. One is a present value of $1 table and one is a future value of $1 table. How can you tell which table is which type?

An example of a deferred annuity is payments for ________.

You decide to deposit $2,000 at a local bank for two years at a 8% rate of interest compounded annually. What is the future value of your investment? (Do not round any intermediary calculations, and round your final answer to the nearest dollar.) Use the formula approach.

The relationship between the future value of a single sum and the corresponding present value of a single sum is determined by the interest rate per compounding period and ________.

Compound interest is computed on both the principal and on the accumulated interest.

With an annuity due, a payment is made or received on the date the agreement begins.

What is the time value of money?

Why do accountants need to be familiar with present value concepts?

A future value is always less than the corresponding present value.

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Revenue Recognition

Extenssion: Ol Revenue Recognition Previous Standard

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Investing Assets

Accounting for Income Taxes

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

The Statement of Cash Flows

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