Exam 7: Accounting and the Time Value of Money

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

The future amount of an annuity due is determined ________.

Potash Corporation financed the purchase of a building by making semiannual payments of $20,000 a year for the next twenty years,with the first payment due one year from today.The purchase cost of the building is considered to be the present value of those payments.What was the purchase cost of the building to Potash assuming an annual interest rate of 10%?

The parents of a recent high school graduate decides to invest the $5,000 he received for her high school graduation in a fund earning 10% annual interest.At the end of the four-year period,she expects to withdraw the money to pay for accumulated college tuition loans.What is the approximate amount that would be available for withdrawal after five years if interest is compounded monthly?

A specific present 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 present value of a single sum factors over all the discount rates for that specific number of periods.

Describe how a risk-free rate of return might be determined and provide an example.

When payments take place at the beginning of the period,the series of cash flows is called ________.

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

What is the effective interest rate for an investment fund that pays 8% interest compounded semiannually?

The method of converting a future dollar amount into its present dollar value by removing the time value of money is called ________.

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 minus 1.

A series of equal periodic payments in which the first payment is made one compounding period after the date of the contract is ________.

The relationship between a future value and its corresponding present value is determined by the discount rate and ________.

A deferred annuity is an annuity for which payments are delayed until the end of each period.

Which of the following situations does not use an accounting measure based on present values?

Which of the following equations is consistent with the relationship between the future value (FV)and the present value (PV)given a discount rate (R)and the number (N)of compounding periods?

In order to measure the value of investments in bonds,which of the following time value of money concepts is used?

Explain how to determine the converted factor for any deferred annuity by using only the table for factors of the present value of an ordinary annuity.

When the present value of an annuity is calculated as of two or more periods before the payment of the first cash flow,the annuity is ________.

The effective interest rate is the same as the stated interest rate.