Question 1

What interest rate (the nearest percent) must Charlie earn on a €300,000 investment today so that he will have €760,000 after 12 years?

Accepted Answer

A)  6% 
B)  7% 
C)  8% 
D)  9% 
A)  6% 
B)  7% 
C)  8% 
D)  9%

Question 2

Present value is

Accepted Answer

A)  the value now of a future amount. 
B)  the amount that must be invested now to produce a known future value. 
C)  always smaller than the future value. 
D)  all of these answer choices are correct. 
A)  the value now of a future amount. 
B)  the amount that must be invested now to produce a known future value. 
C)  always smaller than the future value. 
D)  all of these answer choices are correct.

Question 3

Ethan has £50,000 to invest today at an annual interest rate of 4%. Approximately how many years will it take before the investment grows to £101,250?

Accepted Answer

A)  18 years 
B)  20 years 
C)  16 years 
D)  11 years 
A)  18 years 
B)  20 years 
C)  16 years 
D)  11 years

Question 4

An accountant wishes to find the present value of an annuity of 1 payable at the beginning of each period at 10% for eight periods. The accountant has only one present value table which shows the present value of an annuity of 1 payable at the end of each period. To compute the present value, the accountant would use the present value factor in the 10% column for

Accepted Answer

A)  seven periods. 
B)  eight periods and multiply by (1 + .10). 
C)  eight periods. 
D)  nine periods and multiply by (1 - .10). 
A)  seven periods. 
B)  eight periods and multiply by (1 + .10). 
C)  eight periods. 
D)  nine periods and multiply by (1 - .10).

Question 5

Which statement is false?

Accepted Answer

A)  The factor for the future value of an annuity due is found by multiplying the ordinary annuity table value by one plus the interest rate. 
B)  The factor for the present value of an annuity due is found by multiplying the ordinary annuity table value by one minus the interest rate. 
C)  The factor for the future value of an annuity due is found by subtracting 1.00000 from the ordinary annuity table value for one more period. 
D)  The factor for the present value of an annuity due is found by adding 1.00000 to the ordinary annuity table value for one less period. 
A)  The factor for the future value of an annuity due is found by multiplying the ordinary annuity table value by one plus the interest rate. 
B)  The factor for the present value of an annuity due is found by multiplying the ordinary annuity table value by one minus the interest rate. 
C)  The factor for the future value of an annuity due is found by subtracting 1.00000 from the ordinary annuity table value for one more period. 
D)  The factor for the present value of an annuity due is found by adding 1.00000 to the ordinary annuity table value for one less period.

Question 6

What is not a variable that is considered in interest computations?

Accepted Answer

A)  Principal 
B)  Interest rate 
C)  Assets 
D)  Time 
A)  Principal 
B)  Interest rate 
C)  Assets 
D)  Time

Question 7

What amount will be in an 8% bank account three years from now if £6,000 is invested each year for four years with the first investment to be made today?

Accepted Answer

A)  (£6,000 × 1.260) + (£6,000 × 1.166) + (£6,000 × 1.080) + £6,000 
B)  £6,000 × 1.360 × 4 
C)  (£6,000 × 1.080) + (£6,000 × 1.166) + (£6,000 × 1.260) + (£6,000 × 1.360) 
D)  £6,000 × 1.080 × 4 
A)  (£6,000 × 1.260) + (£6,000 × 1.166) + (£6,000 × 1.080) + £6,000 
B)  £6,000 × 1.360 × 4 
C)  (£6,000 × 1.080) + (£6,000 × 1.166) + (£6,000 × 1.260) + (£6,000 × 1.360) 
D)  £6,000 × 1.080 × 4

Question 8

The rents that comprise an annuity due earn no interest during the period in which they are originally deposited.

Accepted Answer

A) True 
 B)False

Question 9

The present value of an ordinary annuity is the present value of a series of equal rents withdrawn at equal intervals.

Accepted Answer

A) True 
 B)False

Question 10

For which of the following transactions would the use of the present value of an ordinary annuity concept not be appropriate in calculating the present value of the asset obtained or the liability owed at the date of incurrence?

Accepted Answer

A)  A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement. 
B)  A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement. 
C)  A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 1 and July 1 yielding 7%. 
D)  A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 1 and July 1 yielding 9%. 
A)  A capital lease is entered into with the initial lease payment due one month subsequent to the signing of the lease agreement. 
B)  A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement. 
C)  A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 1 and July 1 yielding 7%. 
D)  A ten-year 8% bond is issued on January 2 with interest payable semiannually on January 1 and July 1 yielding 9%.

Question 11

If €4,000 is put in a savings account today, what amount will be available six years from now?

Accepted Answer

A)  €4,000 × 1.080 × 6 
B)  €4,000 × 1.080 × 1.469 
C)  €4,000 × 1.166 × 3 
D)  €4,000 × 1.260 × 2
Items 59 through 61 apply to the appropriate use of present value tables. Given below are the present value factors for £1 discounted at 10% for one to five periods. Each of the items 59 to 61 is based on 10% interest compounded annually. 
A)  €4,000 × 1.080 × 6 
B)  €4,000 × 1.080 × 1.469 
C)  €4,000 × 1.166 × 3 
D)  €4,000 × 1.260 × 2
Items 59 through 61 apply to the appropriate use of present value tables. Given below are the present value factors for £1 discounted at 10% for one to five periods. Each of the items 59 to 61 is based on 10% interest compounded annually.

Question 12

Jenks Company financed the purchase of a machine by making payments of £24,000 at the end of each of five years. The appropriate rate of interest was 8%. The future value of one for five periods at 8% is 1.46933. The future value of an ordinary annuity for five periods at 8% is 5.8666. The present value of an ordinary annuity for five periods at 8% is 3.99271. What was the cost of the machine to Jenks?

Accepted Answer

A)  £35,264 
B)  £95,825 
C)  £120,000 
D)  £140,800 
A)  £35,264 
B)  £95,825 
C)  £120,000 
D)  £140,800

Question 13

Jerry recently was offered a position with a major accounting firm. The firm offered Jerry either a signing bonus of £23,000 payable on the first day of work or a signing bonus of £26,000 payable after one year of employment. Assuming that the relevant interest rate is 10%, which option should Jerry choose?

Accepted Answer

A)  The options are equivalent. 
B)  Insufficient information to determine. 
C)  The signing bonus of £23,000 payable on the first day of work. 
D)  The signing bonus of £26,000 payable after one year of employment.
Items 56 through 58 apply to the appropriate use of interest tables. Given below are the future value factors for 1 at 8% for one to five periods. Each of the items 56 to 58 is based on 8% interest compounded annually. 
A)  The options are equivalent. 
B)  Insufficient information to determine. 
C)  The signing bonus of £23,000 payable on the first day of work. 
D)  The signing bonus of £26,000 payable after one year of employment.
Items 56 through 58 apply to the appropriate use of interest tables. Given below are the future value factors for 1 at 8% for one to five periods. Each of the items 56 to 58 is based on 8% interest compounded annually.

Question 14

Compound interest, rather than simple interest, must be used to properly evaluate long- term investment proposals.

Accepted Answer

A) True 
 B)False

Question 15

If two annuities have the same number of rents with the same dollar amount, but one is an annuity due and one is an ordinary annuity, the future value of the annuity due will be greater than the future value of the ordinary annuity.

Accepted Answer

A) True 
 B)False

Question 16

What would you pay for an investment that pays you €20,000 at the end of each year for the next ten years and then returns a maturity value of €300,000 after ten years? Assume that the relevant interest rate for this type of investment is 8%.

Accepted Answer

A)  €138,958 
B)  €134,202 
C)  €144,936 
D)  €273,158 
A)  €138,958 
B)  €134,202 
C)  €144,936 
D)  €273,158

Question 17

Which table would you use to determine how much you would need to have deposited three years ago at 10% compounded annually in order to have $1,000 today?

Accepted Answer

A)  Future value of 1 or present value of 1 
B)  Future value of an annuity due of 1 
C)  Future value of an ordinary annuity of 1 
D)  Present value of an ordinary annuity of 1 
A)  Future value of 1 or present value of 1 
B)  Future value of an annuity due of 1 
C)  Future value of an ordinary annuity of 1 
D)  Present value of an ordinary annuity of 1

Question 18

The number of compounding periods will always be one less than the number of rents when computing the future value of an ordinary annuity.

Accepted Answer

A) True 
 B)False

Question 19

What would you pay for an investment that pays you £20,000 at the end of each year for the next twenty years? Assume that the relevant interest rate for this type of investment is 12%.

Accepted Answer

A)  £167,316 
B)  £1,441,048 
C)  £20,734 
D)  £149,388 
A)  £167,316 
B)  £1,441,048 
C)  £20,734 
D)  £149,388

Question 20

Assume ABC Company deposits €50,000 with First National Bank in an account earning interest at 6% per annum, compounded semi-annually. How much will ABC have in the account after five years if interest is reinvested?

Accepted Answer

A)  €67,196 
B)  €50,000 
C)  €65,000 
D)  €66,912 
A)  €67,196 
B)  €50,000 
C)  €65,000 
D)  €66,912

What interest rate (the nearest percent) must Charlie earn on a €300,000 investment today so that he will have €760,000 after 12 years?

Present value is

Ethan has £50,000 to invest today at an annual interest rate of 4%. Approximately how many years will it take before the investment grows to £101,250?

Which statement is false?

What is not a variable that is considered in interest computations?

What amount will be in an 8% bank account three years from now if £6,000 is invested each year for four years with the first investment to be made today?

The rents that comprise an annuity due earn no interest during the period in which they are originally deposited.

The present value of an ordinary annuity is the present value of a series of equal rents withdrawn at equal intervals.

For which of the following transactions would the use of the present value of an ordinary annuity concept not be appropriate in calculating the present value of the asset obtained or the liability owed at the date of incurrence?

If €4,000 is put in a savings account today, what amount will be available six years from now?

Compound interest, rather than simple interest, must be used to properly evaluate long- term investment proposals.

If two annuities have the same number of rents with the same dollar amount, but one is an annuity due and one is an ordinary annuity, the future value of the annuity due will be greater than the future value of the ordinary annuity.

What would you pay for an investment that pays you €20,000 at the end of each year for the next ten years and then returns a maturity value of €300,000 after ten years? Assume that the relevant interest rate for this type of investment is 8%.

Which table would you use to determine how much you would need to have deposited three years ago at 10% compounded annually in order to have $1,000 today?

The number of compounding periods will always be one less than the number of rents when computing the future value of an ordinary annuity.

What would you pay for an investment that pays you £20,000 at the end of each year for the next twenty years? Assume that the relevant interest rate for this type of investment is 12%.

Assume ABC Company deposits €50,000 with First National Bank in an account earning interest at 6% per annum, compounded semi-annually. How much will ABC have in the account after five years if interest is reinvested?

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Filters

Exam 6: Accounting and the Time Value of Money

What interest rate (the nearest percent) must Charlie earn on a €300,000 investment today so that he will have €760,000 after 12 years?

Present value is

Ethan has £50,000 to invest today at an annual interest rate of 4%. Approximately how many years will it take before the investment grows to £101,250?

Which statement is false?

What is not a variable that is considered in interest computations?

What amount will be in an 8% bank account three years from now if £6,000 is invested each year for four years with the first investment to be made today?

The rents that comprise an annuity due earn no interest during the period in which they are originally deposited.

The present value of an ordinary annuity is the present value of a series of equal rents withdrawn at equal intervals.

For which of the following transactions would the use of the present value of an ordinary annuity concept not be appropriate in calculating the present value of the asset obtained or the liability owed at the date of incurrence?

If €4,000 is put in a savings account today, what amount will be available six years from now?

Compound interest, rather than simple interest, must be used to properly evaluate long- term investment proposals.

If two annuities have the same number of rents with the same dollar amount, but one is an annuity due and one is an ordinary annuity, the future value of the annuity due will be greater than the future value of the ordinary annuity.

What would you pay for an investment that pays you €20,000 at the end of each year for the next ten years and then returns a maturity value of €300,000 after ten years? Assume that the relevant interest rate for this type of investment is 8%.

Which table would you use to determine how much you would need to have deposited three years ago at 10% compounded annually in order to have $1,000 today?

The number of compounding periods will always be one less than the number of rents when computing the future value of an ordinary annuity.

What would you pay for an investment that pays you £20,000 at the end of each year for the next twenty years? Assume that the relevant interest rate for this type of investment is 12%.

Assume ABC Company deposits €50,000 with First National Bank in an account earning interest at 6% per annum, compounded semi-annually. How much will ABC have in the account after five years if interest is reinvested?

Financial Reporting and Accounting Standards

Conceptual Framework for Financial Reporting

The Accounting Information System

Income Statement and Related Information

Statement of Financial Position and Statement of Cash Flows

Cash and Receivables

Valuation of Inventories: a Cost-Basis Approach

Inventories: Additional Valuation Issues

Acquisition and Disposition of Property, Plant, and Equipment

Depreciation, Impairments, and Depletion

Intangible Assets

Filters