Question 1

A future amount is the dollar amount to which a present value will ______________ over time.

Accepted Answer

A)  vanish. 
B)  accumulate. 
C)  disappear. 
D)  remain. 
A)  vanish. 
B)  accumulate. 
C)  disappear. 
D)  remain. B

Question 2

Financial instruments do not include:

Accepted Answer

A)  Contracts that call for receipts or payment of cash. 
B)  Equity investment in another business. 
C)  Cash. 
D)  Tangible assets. 
A)  Contracts that call for receipts or payment of cash. 
B)  Equity investment in another business. 
C)  Cash. 
D)  Tangible assets. D

Question 3

(a) How long will it take Barbara to accumulate $30,000 to buy a car if she invests $15,000 at 5%? (b) How long will it take if she invests the same amount at 4% semi-annually?

Accepted Answer

(a) $31,183.95 (approximately 15 years)
(b) $29,998.35 (approximately 17 ½ years)

Question 4

An annuity due assumes the cash flow will occur at the beginning of the period.

Accepted Answer

A) True 
 B)False

Question 5

As the discount rate required by an investor increases, the present value of an investment decreases.

Accepted Answer

A) True 
 B)False

Question 6

An interest rate of 12% a year is the same as 6% for 2 months.

Accepted Answer

A) True 
 B)False

Question 7

Explain how compound interest applies to the time value of money.

Accepted Answer

The relationship between present and fut

Question 8

Sam Rivers has $3,000 to invest. He must decide whether to invest this money for five years at 10% compounded semi-annually or at 12% compounded annually. Which option should he select?

Accepted Answer

He should

Question 9

Explain what is meant by the "time value of money." Provide examples.

Accepted Answer

This concept is based on the idea that a

Question 10

How much must I invest today in order to have $25,000 in 5 years assuming 12% interest compounded annually?

Accepted Answer

A)  $14,185.75. 
B)  $15,888.00. 
C)  $18,681.50. 
D)  $17.624.00. 
A)  $14,185.75. 
B)  $15,888.00. 
C)  $18,681.50. 
D)  $17.624.00.

Question 11

If you invested $10,000 at 6% on your 20th birthday how much would you have on your 40th birthday?

Accepted Answer

A)  $32,071.40. 
B)  $31,180.00. 
C)  $36,785.59. 
D)  $12,158.12. 
A)  $32,071.40. 
B)  $31,180.00. 
C)  $36,785.59. 
D)  $12,158.12.

Question 12

The present value of an ordinary annuity is the amount that equals payments made at the end of successive equal periods is worth today.

Accepted Answer

A) True 
 B)False

Question 13

Financial instruments are recorded at:

Accepted Answer

A)  Future values. 
B)  Present values plus interest. 
C)  Present values less interest. 
D)  Present values. 
A)  Future values. 
B)  Present values plus interest. 
C)  Present values less interest. 
D)  Present values.

Question 14

The present value of a single amount can only be calculated through the application of complex calculations.

Accepted Answer

A) True 
 B)False

Question 15

Future value is the amount that must be invested today at a specific interest rate to receive a particular amount at some future date.

Accepted Answer

A) True 
 B)False

Question 16

If I invest $50,000 today for 5 years and it grows to $84,253, what rate of interest have I received?

Accepted Answer

A)  5%. 
B)  6%. 
C)  11%. 
D)  12%. 
A)  5%. 
B)  6%. 
C)  11%. 
D)  12%.

Question 17

Your wealthy aunt wishes to give you a trip to Paris when you graduate from college in three years. She estimates the trip will cost $4,000. How much must she invest now at 4% to accumulate enough for you to take this trip?

Accepted Answer

A)  $3,287.72. 
B)  $3,556.00. 
C)  $4,499.44. 
D)  $3,161.24. 
A)  $3,287.72. 
B)  $3,556.00. 
C)  $4,499.44. 
D)  $3,161.24.

Question 18

Anthony Driver wants to buy a new car in 4 years. He knows that he can earn 6% interest compounded semi-annually. How much must he deposit now in order to have $26,000 at the end of 4 years?

Accepted Answer

A)  $21,390.20. 
B)  $20,524.66. 
C)  $38,413.96. 
D)  $31.603.26. 
A)  $21,390.20. 
B)  $20,524.66. 
C)  $38,413.96. 
D)  $31.603.26.

Question 19

Compound interest:

Accepted Answer

A)  Is interest only on the principal amount for several years. 
B)  Is interest on the principal and previously earned interest. 
C)  Is interest only on previous interest excluding the principal. 
D)  Is equal to simple interest received for several years. 
A)  Is interest only on the principal amount for several years. 
B)  Is interest on the principal and previously earned interest. 
C)  Is interest only on previous interest excluding the principal. 
D)  Is equal to simple interest received for several years.

Question 20

To determine the amount to be deposited in a bank today to grow to $5,000 three years from now at 7% which table should be used?

Accepted Answer

A)  Present value of 1. 
B)  Future value of 1. 
C)  Present value of an annuity. 
D)  No table is required, just multiply $5,000 by 1.07. 
A)  Present value of 1. 
B)  Future value of 1. 
C)  Present value of an annuity. 
D)  No table is required, just multiply $5,000 by 1.07.

Exam 27: The Time Value of Money: Future Amounts and Present Values Answer Key

A future amount is the dollar amount to which a present value will ______________ over time.

Financial instruments do not include:

(a) How long will it take Barbara to accumulate $30,000 to buy a car if she invests $15,000 at 5%? (b) How long will it take if she invests the same amount at 4% semi-annually?

An annuity due assumes the cash flow will occur at the beginning of the period.

As the discount rate required by an investor increases, the present value of an investment decreases.

An interest rate of 12% a year is the same as 6% for 2 months.

Explain how compound interest applies to the time value of money.

Sam Rivers has $3,000 to invest. He must decide whether to invest this money for five years at 10% compounded semi-annually or at 12% compounded annually. Which option should he select?

Explain what is meant by the "time value of money." Provide examples.

How much must I invest today in order to have $25,000 in 5 years assuming 12% interest compounded annually?

If you invested $10,000 at 6% on your 20th birthday how much would you have on your 40th birthday?

The present value of an ordinary annuity is the amount that equals payments made at the end of successive equal periods is worth today.

Financial instruments are recorded at:

The present value of a single amount can only be calculated through the application of complex calculations.

Future value is the amount that must be invested today at a specific interest rate to receive a particular amount at some future date.

If I invest $50,000 today for 5 years and it grows to $84,253, what rate of interest have I received?

Your wealthy aunt wishes to give you a trip to Paris when you graduate from college in three years. She estimates the trip will cost $4,000. How much must she invest now at 4% to accumulate enough for you to take this trip?

Anthony Driver wants to buy a new car in 4 years. He knows that he can earn 6% interest compounded semi-annually. How much must he deposit now in order to have $26,000 at the end of 4 years?

Compound interest:

To determine the amount to be deposited in a bank today to grow to $5,000 three years from now at 7% which table should be used?

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

Forms of Business Organization

Filters

If you invested $10,000 at 6% on your 20^th birthday how much would you have on your 40^th birthday?