Exam 7: Accounting and the Time Value of Money

You decide to deposit $3,000 at a local bank for three years at a 6% rate of interest compounded semiannually.The future value of your investment is most nearly equal to ________.

The present value of an asset is the opposite of the present value of a liability.

A zero-interest bond pays $600,000 in 10 years.What amount would you be willing to pay to acquire the bond today if you want to earn a return of approximately 8%?

For any discount rate,the future value of an annuity due factor for n periods is equal to the future value of an ordinary annuity factor for n - 1 periods plus 1.

Which of the following tables would show the smallest value for an interest rate of 8% for ten periods?

For any specific number of periods,the present value factor decreases as the discount rate increases.

Each quarter for the next 10 years,Carmen Lector will deposit $1,000 into an investment fund that pays 8% compounded quarterly. 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?

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

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

You have discovered an investment opportunity that earns a 9% rate of interest compounded annually.What amount should you deposit today to have $3,000 in two years?

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.

What is the relationship between the future value of one and the present value of one?

Fanagi Corp.borrowed $58,000 from its bank at a 6% annual interest rate and will repay $250,000.Assume annual compounding.In approximately how many years will Fanagi repay the loan?

An annuity due is a series of equal periodic payments made at the beginning of each period.

The relationship between a future value and its corresponding present value is determined by two variables.What are those two variables?

The expected cash flow approach encompasses all of the following features in determining a present value except ________.

Assume that you have the opportunity to receive $5,000 at the end of each of the next five years.Given an interest rate of 6%,how much would you be willing to pay for this investment today?

Each year for the next 10 years,Carmen Lector will deposit $4,000 into an investment fund that pays 8% compounded annually. a.What is the present value of those investment payments if the first of 40 deposits are made at the end of each year? b.What is the present value of those investment payments if the first of 40 deposits are made at the beginning of each year?

Which of the following statements is true?

The expected cash flow approach values an asset or liability using a range of estimated future cash flows times the probability of their occurrence discounted at the risk-free rate of return.