Question 1

Match between columns
                        Premises: The value today of a future amount to be received or paid.
The value at a future date of a given amount invested.
Return on principal plus interest for two or more periods.
Value today of a series of future amounts to be received or paid.
The sum of all the payments or receipts plus the accumulated compound interest on them.

Accepted Answer

The Answer of Compound interest and Future value of a is...

Question 2

The process of determining the present value is referred to as discounting the future amount.

Accepted Answer

A) True 
 B)False

Question 3

What is the present value of $90000 due 7 years from now discounted at 9%?
(b) What is the present value of $150000 due 5 years from now discounted at 12%?

Accepted Answer

Use Table 3.
(a) $90000 × .547

Question 4

The decision to make long-term capital investments is best evaluated using discounting techniques that recognize the time value of money.

Accepted Answer

A) True 
 B)False

Question 5

Present value is based on

Accepted Answer

A)  the dollar amount to be received. 
B)  the length of time until the amount is received. 
C)  the interest rate. 
D)  All of these answers are correct. 
A)  the dollar amount to be received. 
B)  the length of time until the amount is received. 
C)  the interest rate. 
D)  All of these answers are correct.

Question 6

In order to compute the present value of an annuity it is necessary to know the
1) discount rate.
2) number of discount periods and the amount of the periodic payments or receipts.

Accepted Answer

A)  1 
B)  2 
C)  both 1 and 2 
D)  something in addition to 1 and 2 
A)  1 
B)  2 
C)  both 1 and 2 
D)  something in addition to 1 and 2

Question 7

Robin Clark has a cell phone that she uses only for emergencies. The cost of the phone is $40 a month. The cellular company is offering unlimited nights and weekends for an additional $10 a month ($120 a year). Robin thinks it would be "cool" to have this benefit and after all $10 a month is not so much. Show Robin how much she will have in 20 years if she invests this $120 a year at 9% instead of accepting the unlimited nights and weekends offer.

Accepted Answer

Use Table

Question 8

Frye Company is considering investing in an annuity contract that will return $50000 annually at the end of each year for 20 years. What amount should Frye Company pay for this investment if it earns an 8% return?

Accepted Answer

Use Table 4.
$50000

Question 9

Suzy Douglas has been offered the opportunity of investing $73540 now. The investment will earn 8% per year and at the end of its life will return $200000 to Suzy. How many years must Suzy wait to receive the $200000?

Accepted Answer

A)  10 
B)  11 
C)  12 
D)  13 
A)  10 
B)  11 
C)  12 
D)  13

Question 10

Interest is the difference between the amount borrowed and the principal.

Accepted Answer

A) True 
 B)False

Question 11

Hazel Company has just purchased equipment that requires annual payments of $40000 to be paid at the end of each of the next 4 years. The appropriate discount rate is 15%. What is the present value of the payments?

Accepted Answer

A)  $114199 
B)  $160000 
C)  $46975 
D)  $150135 
A)  $114199 
B)  $160000 
C)  $46975 
D)  $150135

Question 12

If $40000 is put in a savings account paying interest of 4% compounded annually what amount will be in the account at the end of 5 years?

Accepted Answer

A)  $32878 
B)  $48000 
C)  $48620 
D)  $48666 
A)  $32878 
B)  $48000 
C)  $48620 
D)  $48666

Question 13

Suppose you have a winning lottery ticket and you are given the option of accepting $3000000 three years from now or taking the present value of the $3000000 now. The sponsor of the prize uses a 6% discount rate. If you elect to receive the present value of the prize now the amount you will receive is

Accepted Answer

A)  $2518860. 
B)  $2591520. 
C)  $2670000. 
D)  $3000000. 
A)  $2518860. 
B)  $2591520. 
C)  $2670000. 
D)  $3000000.

Question 14

You are purchasing a car for $25000 and you obtain financing as follows: $2500 down payment 12% interest semiannual payments over 5 years.
Instructions
Compute the payment you will make every 6 months.

Accepted Answer

Use Table 4.
$25000 cost - $25

Question 15

When the periodic payments are not equal in each period the future value can be computed by using a future value of an annuity table.

Accepted Answer

A) True 
 B)False

Question 16

Pleasant Company has decided to begin accumulating a fund for plant expansion. The company deposited $80000 in a fund on January 2 2013. Pleasant will also deposit $40000 annually at the end of each year starting in 2013. The fund pays interest at 4% compounded annually. What is the balance of the fund at the end of 2017 (after the 2017 deposit)?

Accepted Answer

None

Question 17

Mandy How plans to buy an automobile and can deposit $3000 toward the purchase today. If the annual interest rate is 8% how much can Mandy expect to have as a down payment in 3 years?

Accepted Answer

Use Table

Question 18

Compound interest is the return on principal

Accepted Answer

A)  only. 
B)  for one or more periods. 
C)  plus interest for two or more periods. 
D)  for one period. 
A)  only. 
B)  for one or more periods. 
C)  plus interest for two or more periods. 
D)  for one period.

Question 19

Kim Black plans to buy a truck for $24000 after 3 years. If the interest rate is 6% how much money should Kim set aside today for the purchase?

Accepted Answer

Use Table

Question 20

The future value of 1 factor will always be

Accepted Answer

A)  equal to 1. 
B)  greater than 1. 
C)  less than 1. 
D)  equal to the interest rate. 
A)  equal to 1. 
B)  greater than 1. 
C)  less than 1. 
D)  equal to the interest rate.

Exam 27: Time Value of Money

The process of determining the present value is referred to as discounting the future amount.

What is the present value of $90000 due 7 years from now discounted at 9%? (b) What is the present value of $150000 due 5 years from now discounted at 12%?

The decision to make long-term capital investments is best evaluated using discounting techniques that recognize the time value of money.

Present value is based on

In order to compute the present value of an annuity it is necessary to know the 1) discount rate. 2) number of discount periods and the amount of the periodic payments or receipts.

Frye Company is considering investing in an annuity contract that will return $50000 annually at the end of each year for 20 years. What amount should Frye Company pay for this investment if it earns an 8% return?

Suzy Douglas has been offered the opportunity of investing $73540 now. The investment will earn 8% per year and at the end of its life will return $200000 to Suzy. How many years must Suzy wait to receive the $200000?

Interest is the difference between the amount borrowed and the principal.

Hazel Company has just purchased equipment that requires annual payments of $40000 to be paid at the end of each of the next 4 years. The appropriate discount rate is 15%. What is the present value of the payments?

If $40000 is put in a savings account paying interest of 4% compounded annually what amount will be in the account at the end of 5 years?

You are purchasing a car for $25000 and you obtain financing as follows: $2500 down payment 12% interest semiannual payments over 5 years. Instructions Compute the payment you will make every 6 months.

When the periodic payments are not equal in each period the future value can be computed by using a future value of an annuity table.

Mandy How plans to buy an automobile and can deposit $3000 toward the purchase today. If the annual interest rate is 8% how much can Mandy expect to have as a down payment in 3 years?

Compound interest is the return on principal

Kim Black plans to buy a truck for $24000 after 3 years. If the interest rate is 6% how much money should Kim set aside today for the purchase?

The future value of 1 factor will always be

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