Exam 26: Time Value of Money

Peter Johnson invests $35,516.80 now for a series of $5,000 annual returns beginning one year from now. Peter will earn 10% on the initial investment. How many annual payments will Peter receive?

The future value of an annuity factor for 2 periods is equal to

Dexter Company is considering purchasing equipment. The equipment will produce the following cash flows: Year 1 $120,000 Year 2 $200,000 Dexter requires a minimum rate of return of 10%. What is the maximum price Dexter should pay for this equipment?

Present value is based on

If $40,000 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?

Which of the following accounting problems does not involve a present value calculation?

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

McGoff Company deposits $20,000 in a fund at the end of each year for 5 years. The fund pays interest of 4% compounded annually. The balance in the fund at the end of 5 years is computed by multiplying

A higher discount rate produces a higher present value.

If Sloane Joyner invests $10,514.81 now and she will receive $30,000 at the end of 11 years, what annual rate of interest will she be earning on her investment?

In computing the present value of an annuity, it is not necessary to know the number of discount periods.

A $10,000, 6%, 5-year note payable that pays interest quarterly would be discounted back to its present value by using tables that would indicate which one of the following period-interest combinations?

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.

The ______________ of a long-term note or bond is a function of three variables.

If the single amount of $2,000 is to be received in 2 years and discounted at 11%, its present value is

The present value of a long-term note or bond is a function of two variables.

With a financial calculator, one can solve for any interest rate or for any number of periods in a time value of money problem.

If the single amount of $3,000 is to be received in 3 years and discounted at 6%, its present value is

Match the items below by entering the appropriate code letter in the space provided. A. Compound interest B. Future value of a single amount C. Future value of an annuity D. Present value of a single amount E. Present value of an annuity _____ 1. The value today of a future amount to be received or paid. _____ 2. The value at a future date of a given amount invested. _____ 3. Return on principal plus interest for two or more periods. _____ 4. Value today of a series of future amounts to be received or paid. _____ 5. The sum of all the payments or receipts plus the accumulated compound interest on them.

Suppose you have a winning lottery ticket and you are given the option of accepting $3,000,000 three years from now or taking the present value of the $3,000,000 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