Question 1

A series of equal periodic payments that starts more than one period after the agreement begins is called ________.

Accepted Answer

A)  an ordinary annuity 
B)  an annuity due 
C)  a deferred annuity 
D)  a delayed annuity 
A)  an ordinary annuity 
B)  an annuity due 
C)  a deferred annuity 
D)  a delayed annuity

Question 2

Determining the present value of one or more future amounts is known as ________.

Accepted Answer

A)  inverting 
B)  compounding 
C)  discounting 
D)  annuitizing 
A)  inverting 
B)  compounding 
C)  discounting 
D)  annuitizing

Question 3

You are provided with two-time value of money tables. One table provides factors for the future value of an ordinary annuity and the other provides factors for the future value of an annuity due. How can you tell which table is which type?

Accepted Answer

An ordinary annuity is an annuity where

Question 4

A specific present 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 present value of a single sum factors over all the discount rates for that specific number of periods.

Accepted Answer

A) True 
 B)False

Question 5

Each quarter for the next 10 years, Carmen Lector will deposit $1,000 into an investment fund that pays 8% compounded quarterly. Use the formula approach.
a. How much will Carmen have at the end of 10 years if the first of 40 quarterly deposits are made at the end of each quarter?
b. How much will Carmen have at the end of 10 years if the first of 40 quarterly deposits are made at the beginning of each quarter?

Accepted Answer

a. $1,000 × [(1.02)⁴⁰ - 1]/0.02 = $1,000 ×

Question 6

The length of a compounding period is determined by the frequency of interest compounding.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following is false?

Accepted Answer

A)  To calculate the present value of a deferred annuity, determine the present value of an ordinary annuity for the entire period and subtract the present value of the payments which were not received during the deferral period. 
B)  The future value of a deferred annuity is equal to the future value of an annuity not deferred. 
C)  If the first payment is received at the end of the fifth period, it means the ordinary annuity is deferred for five periods. 
D)  The present value of a deferred annuity is less than the present value of an annuity not deferred. 
A)  To calculate the present value of a deferred annuity, determine the present value of an ordinary annuity for the entire period and subtract the present value of the payments which were not received during the deferral period. 
B)  The future value of a deferred annuity is equal to the future value of an annuity not deferred. 
C)  If the first payment is received at the end of the fifth period, it means the ordinary annuity is deferred for five periods. 
D)  The present value of a deferred annuity is less than the present value of an annuity not deferred.

Question 8

List the five primary variables of an annuity problem and explain the difference between an ordinary annuity and an annuity due.

Accepted Answer

Annuity problems can have five variables

Question 9

Bob Marby purchased a TV from Tryton Sales and signed a 2-year, 8% promissory note for $1,000. What is the amount required to pay off the note if it accrues simple interest over the term of the loan?

Accepted Answer

A)  $840 
B)  $1,080 
C)  $1,160 
D)  $920 
A)  $840 
B)  $1,080 
C)  $1,160 
D)  $920

Question 10

The effective interest rate is the same as the stated interest rate.

Accepted Answer

A) True 
 B)False

Question 11

Baxter desires to purchase an annuity on January 1, 2019, that yields him five annual cash flows of $19,000 each, with the first cash flow to be received on January 1, 2022. The interest rate is 10% compounded annually. The cost (present value) of the annuity on January 1, 2019, is ________. (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.)

Accepted Answer

A)  $49,194 
B)  $95,000 
C)  $59,525 
D)  $79,227 
A)  $49,194 
B)  $95,000 
C)  $59,525 
D)  $79,227

Question 12

A zero-interest bond pays $100,000 in seven years. What amount would you be willing to pay to acquire the bond today if you want to earn a return of approximately 10%? Use the present value of $1 table shown below. (Do not round any intermediary calculations, and round your final answer to the nearest dollar.) 
Excerpt of Present Value of $1 Table
$$\begin{array} { | c | c | } 
\hline \text { Periods } & \mathbf { 1 0 } \% \
\hline 1 & 0.90909 \
\hline 2 & 0.82645 \
\hline 3 & 0.75131 \
\hline 4 & 0.68301 \
\hline 5 & 0.62092 \
\hline 6 & 0.56447 \
\hline 7 & 0.51316 \
\hline
\end{array}$$

Accepted Answer

A)  $90,909 
B)  $68,301 
C)  $51,316 
D)  $30,000 
A)  $90,909 
B)  $68,301 
C)  $51,316 
D)  $30,000

Question 13

The future value of an ordinary annuity for any given interest rate and number of periods is always less than the future value of an annuity due for the same interest rate and number of periods.

Accepted Answer

A) True 
 B)False

Question 14

All of the following are conditions for an annuity due except ________.

Accepted Answer

A)  the interest rate is constant for each time period 
B)  payments occur at the end of each time period 
C)  the time periods between the cash flows are the same length 
D)  periodic cash flows must be equal in amount 
A)  the interest rate is constant for each time period 
B)  payments occur at the end of each time period 
C)  the time periods between the cash flows are the same length 
D)  periodic cash flows must be equal in amount

Question 15

Como Company borrowed $5,200 from its bank. Como will repay $7,300 in five years. What is the approximate interest rate that Como will incur on this loan, assuming annual compounding? Use the future value of $1 table.
 Excerpt of Future Value of $1 Table
$$\begin{array} { | c | c | c | c | } 
\hline \text { Periods } & \mathbf { 7 \% } & \mathbf { 8 \% } & \mathbf { 9 \% } \
\hline 1 & 1.07000 & 1.08000 & 1.09000 \
\hline 2 & 1.14490 & 1.16640 & 1.18810 \
\hline 3 & 1.22504 & 1.25971 & 1.29503 \
\hline 4 & 1.31080 & 1.36049 & 1.41158 \
\hline 5 & 1.40255 & 1.46933 & 1.53862 \
\hline 6 & 1.50073 & 1.58687 & 1.67710 \
\hline
\end{array}$$

Accepted Answer

A)  7% 
B)  8% 
C)  9% 
D)  29% 
A)  7% 
B)  8% 
C)  9% 
D)  29%

Question 16

A single amount is invested and increases over time as interest is compounded. If the number of periods is known, the interest rate can be approximately determined by ________.

Accepted Answer

A)  dividing the present value by the future value and looking for the quotient in the future value of $1 table 
B)  multiplying the present value by the future value and looking for the product in the present value of $1 table 
C)  dividing the future value by the present value and looking for the quotient in the future value of $1 table 
D)  dividing the future value by the present value and looking for the quotient in the present value of $1 table 
A)  dividing the present value by the future value and looking for the quotient in the future value of $1 table 
B)  multiplying the present value by the future value and looking for the product in the present value of $1 table 
C)  dividing the future value by the present value and looking for the quotient in the future value of $1 table 
D)  dividing the future value by the present value and looking for the quotient in the present value of $1 table

Question 17

Cocopedia Inc. is planning to issue bonds that will pay 6% semiannual interest and mature in 10 years.
a. How much will investors be willing to pay for a $1,000 bond if the prevailing market yield rate is 4%? Use the Excel function.
b. How much will investors be willing to pay for a $1,000 bond if the prevailing market interest rate is 8%? Use the Excel function.

Accepted Answer

The value of a bond is the sum of the pr

Question 18

The method of converting a future dollar amount into its present dollar value by removing the time value of money is called ________.

Accepted Answer

A)  devaluing 
B)  amortizing 
C)  compounding 
D)  discounting 
A)  devaluing 
B)  amortizing 
C)  compounding 
D)  discounting

Question 19

Determining the future value of one or more present day cash flows is known as ________.

Accepted Answer

A)  disinvesting 
B)  compounding 
C)  discounting 
D)  annuitizing 
A)  disinvesting 
B)  compounding 
C)  discounting 
D)  annuitizing

Question 20

On January 1, 2020, Denero Company issued 10-year bonds with a face value of $6,000,000 due on December 31, 2029. The company will accumulate a fund to retire these bonds at maturity. It will make ten annual deposits to the fund beginning on December 31, 2020. How much must Denero deposit each year to achieve this investment goal, assuming that it will earn 5% interest compounded annually? (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.)

Accepted Answer

A)  $777,027 
B)  $454,612 
C)  $477,027 
D)  $600,000 
A)  $777,027 
B)  $454,612 
C)  $477,027 
D)  $600,000

A series of equal periodic payments that starts more than one period after the agreement begins is called ________.

Determining the present value of one or more future amounts is known as ________.

You are provided with two-time value of money tables. One table provides factors for the future value of an ordinary annuity and the other provides factors for the future value of an annuity due. How can you tell which table is which type?

A specific present 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 present value of a single sum factors over all the discount rates for that specific number of periods.

The length of a compounding period is determined by the frequency of interest compounding.

Which of the following is false?

List the five primary variables of an annuity problem and explain the difference between an ordinary annuity and an annuity due.

Bob Marby purchased a TV from Tryton Sales and signed a 2-year, 8% promissory note for $1,000. What is the amount required to pay off the note if it accrues simple interest over the term of the loan?

The effective interest rate is the same as the stated interest rate.

The future value of an ordinary annuity for any given interest rate and number of periods is always less than the future value of an annuity due for the same interest rate and number of periods.

All of the following are conditions for an annuity due except ________.

A single amount is invested and increases over time as interest is compounded. If the number of periods is known, the interest rate can be approximately determined by ________.

The method of converting a future dollar amount into its present dollar value by removing the time value of money is called ________.

Determining the future value of one or more present day cash flows is known as ________.

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

Filters

Exam 7: Accounting and the Time Value of Money

A series of equal periodic payments that starts more than one period after the agreement begins is called ________.

Determining the present value of one or more future amounts is known as ________.

You are provided with two-time value of money tables. One table provides factors for the future value of an ordinary annuity and the other provides factors for the future value of an annuity due. How can you tell which table is which type?

A specific present 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 present value of a single sum factors over all the discount rates for that specific number of periods.

The length of a compounding period is determined by the frequency of interest compounding.

Which of the following is false?

List the five primary variables of an annuity problem and explain the difference between an ordinary annuity and an annuity due.

Bob Marby purchased a TV from Tryton Sales and signed a 2-year, 8% promissory note for $1,000. What is the amount required to pay off the note if it accrues simple interest over the term of the loan?

The effective interest rate is the same as the stated interest rate.

The future value of an ordinary annuity for any given interest rate and number of periods is always less than the future value of an annuity due for the same interest rate and number of periods.

All of the following are conditions for an annuity due except ________.

A single amount is invested and increases over time as interest is compounded. If the number of periods is known, the interest rate can be approximately determined by ________.

The method of converting a future dollar amount into its present dollar value by removing the time value of money is called ________.

Determining the future value of one or more present day cash flows is known as ________.

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

Filters