Exam 7: Accounting and the Time Value of Money

What is the primary difference between an ordinary annuity and an annuity due?

Each year for the next 10 years,Carmen Lector will deposit $4,000 into an investment fund that pays 10% compounded annually. a.How much will Carmen have at the end of 10 years if the first of 10 deposits are made at the end of each year? b.How much will Carmen have at the end of 10 years if the first of 10 deposits are made at the beginning of each year?

Jenks Company financed the purchase of a machine by paying $24,000 a year for the next five years,with the first payment due one year from today.The purchase cost of the machine is considered to be the present value of those payments.What was the purchase cost of the machine to Jenks assuming a discount rate of 8%?

Each quarter for the next 10 years,Carmen Lector will deposit $1,000 into an investment fund that pays 8% compounded quarterly. a.What is the present value of those investment payments if the first of 40 deposits are made at the end of each quarter? b.What is the present value of those investment payments if the first of 40 deposits are made at the beginning of each quarter?

The risk free rate of return is equal to the rate of return minus the expected inflation rate.

The present value of a four-year ordinary annuity for which the first payment is deferred for five years (not received until year six)is equal to the present value of a nine-year ordinary annuity minus the present value of a five-year ordinary annuity.

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

A specific future 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 future value of a single sum factors over the number of periods for that discount rate.

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

The value of a dollar in the future is greater than the value of a dollar today because interest is added.

Maria Gonzales is considering two investment options for a $2,500 gift she received for graduation.Both investments have the same annual interest rates but one offers quarterly compounding while the other compounds on a monthly basis.Which investment should she choose? Why?

Paula Poser will receive $80,000 on December 31,2022,from a trust fund established by her mother.Assuming the appropriate interest rate for discounting is 12% (compounded semiannually),what is the present value of this amount as of January 1,2017 (5 years earlier)?

Simple interest on a $25,000,8%,18-month note is ________.

Suppose you borrow money from your parents for college tuition on January 1,2015.Your parents require four annual payments of $10,000 each,with the first payment due on January 1,2019.They are charging you 6% annual interest.What is the cost of the college tuition?

An ordinary annuity is a series of equal periodic payments and an annuity due is a series of unequal periodic payments.

A deferred annuity is an annuity in which interest is not compounded until a future period.

What is the effective interest rate for an investment fund that pays 12% interest compounded monthly?

Which of the following must be known to compute the interest rate paid from financing an asset purchase with an annuity?

Como Company borrowed $4,550 from its bank.Como will repay $7,000 in five years.What is the approximate interest rate that Como will incur on this loan,assuming annual compounding?

Present value factors are determined by two characteristics: the interest rate and the length of the compounding periods.