Question 1

If I invest $100 at the end of each year for four years at 6% how much will I have at the end of the fourth year?

Accepted Answer

A)  $421.24. 
B)  $437.46. 
C)  $563.71. 
D)  $432.95. 
A)  $421.24. 
B)  $437.46. 
C)  $563.71. 
D)  $432.95.

Question 2

The present value of a single amount is calculated by multiplying the future amount by the present value of $1 table.

Accepted Answer

A) True 
 B)False

Question 3

The rate of interest is usually expressed as an annual rate.

Accepted Answer

A) True 
 B)False

Question 4

The present value of an annuity is calculated by multiplying the periodic cash flows by the discounted factor from the future value of an annuity table.

Accepted Answer

A) True 
 B)False

Question 5

Use the tables to determine the answers to the following:
(1) How much must be invested now for 5 periods at 6% to amount to $15,000?
(2) How much is $3,000 invested now at 8% in 8 periods worth?
(3) How much is $25,000 compounded quarterly at 12% for 4 years?

Accepted Answer

(1) $11,20

Question 6

If I invest $20,000 at 2.5% today, how long will it take to reach a minimum of $50,000 compounded semi-annually?

Accepted Answer

A)  5 years. 
B)  19 years. 
C)  9 and ½ years. 
D)  17 years. 
A)  5 years. 
B)  19 years. 
C)  9 and ½ years. 
D)  17 years.

Question 7

Joe Notsosmart invested $10,000 at 8% simple interest for 5 years. How much more would he have received if he had received compound interest annually at the same rate?

Accepted Answer

A)  $4,000. 
B)  $4,693. 
C)  $693. 
D)  $400. 
A)  $4,000. 
B)  $4,693. 
C)  $693. 
D)  $400.

Question 8

The difference between the present value and the future value of a sum of money depends upon:

Accepted Answer

A)  The rate of interest. 
B)  The length of time. 
C)  The rate of interest and the length of time. 
D)  Neither the rate of interest nor the length of time. 
A)  The rate of interest. 
B)  The length of time. 
C)  The rate of interest and the length of time. 
D)  Neither the rate of interest nor the length of time.

Question 9

The future value of an annuity is:

Accepted Answer

A)  Always more than the present value. 
B)  Always less than the present value. 
C)  Equal to the present value. 
D)  Double the present value. 
A)  Always more than the present value. 
B)  Always less than the present value. 
C)  Equal to the present value. 
D)  Double the present value.

Question 10

The present value of an investment is:

Accepted Answer

A)  The amount an investor would pay today to receive a certain amount in the future. 
B)  The amount an investor would pay today plus the interest the investor would expect to receive a certain amount in the future. 
C)  The amount an investor would pay today less the interest the investor requires. 
D)  90% of the future value of an investment. 
A)  The amount an investor would pay today to receive a certain amount in the future. 
B)  The amount an investor would pay today plus the interest the investor would expect to receive a certain amount in the future. 
C)  The amount an investor would pay today less the interest the investor requires. 
D)  90% of the future value of an investment.

Question 11

To determine the present value of a single amount to be received or paid at a future time you need to know all of the following except:

Accepted Answer

A)  The interest rate or discount rate. 
B)  The number of periods. 
C)  The future value. 
D)  The time between periods. 
A)  The interest rate or discount rate. 
B)  The number of periods. 
C)  The future value. 
D)  The time between periods.

Question 12

Discounting a future amount of a cash receipt will determine the present value of that receipt.

Accepted Answer

A) True 
 B)False

Question 13

Judy Bright has just won the lottery. She can elect to receive her winnings in equal payments of $200,000 a year for the next ten years on December 31 or to receive $2,000,000 immediately. If the current interest rate is 6%, which choice will provide the highest amount:

Accepted Answer

A)  Receiving $2,000,000 immediately. 
B)  Taking equal payments for 10 years. 
C)  It does not matter since either choice provides the same amount. 
D)  Refusing to accept the winnings since it is not enough. 
A)  Receiving $2,000,000 immediately. 
B)  Taking equal payments for 10 years. 
C)  It does not matter since either choice provides the same amount. 
D)  Refusing to accept the winnings since it is not enough.

Question 14

Joan is 75 years old and wishes to retire. She needs to have $48,000 a year plus her social security to live in the style she is accustomed to. She would like to have enough money in her retirement account which earns 5% compounded annually to support her for the next 15 years. How much must be in the fund if she takes the first payment at year-end?

Accepted Answer

The answer of Joan is 75 years old and wishes...

Question 15

A note that does not include an interest rate should be recorded at:

Accepted Answer

A)  Its face amount if the difference between face and present value is material. 
B)  Its present value if the difference between face and present value is material. 
C)  Its face amount at all times. 
D)  Its present value at all times. 
A)  Its face amount if the difference between face and present value is material. 
B)  Its present value if the difference between face and present value is material. 
C)  Its face amount at all times. 
D)  Its present value at all times.

Question 16

The lower the discount rate of an investment, the lower the present value of the investment.

Accepted Answer

A) True 
 B)False

Question 17

The market price of a bond is equal to its present value.

Accepted Answer

A) True 
 B)False

Question 18

The time value of money is based on the idea that:

Accepted Answer

A)  The value of money in the future equals the interest received in the present. 
B)  The value of money in the future will be greater than an amount available today. 
C)  The value of money at present over some length of time will be reduced by inflation. 
D)  The future value of money will become the current value as time passes. 
A)  The value of money in the future equals the interest received in the present. 
B)  The value of money in the future will be greater than an amount available today. 
C)  The value of money at present over some length of time will be reduced by inflation. 
D)  The future value of money will become the current value as time passes.

Question 19

The future value of an investment gradually increases toward the present amount.

Accepted Answer

A) True 
 B)False

Question 20

The future amount of an annuity is calculated by multiplying the present value of the annuity by its applicable factor from a table.

Accepted Answer

A) True 
 B)False

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

If I invest $100 at the end of each year for four years at 6% how much will I have at the end of the fourth year?

The present value of a single amount is calculated by multiplying the future amount by the present value of $1 table.

The rate of interest is usually expressed as an annual rate.

The present value of an annuity is calculated by multiplying the periodic cash flows by the discounted factor from the future value of an annuity table.

Use the tables to determine the answers to the following: (1) How much must be invested now for 5 periods at 6% to amount to $15,000? (2) How much is $3,000 invested now at 8% in 8 periods worth? (3) How much is $25,000 compounded quarterly at 12% for 4 years?

If I invest $20,000 at 2.5% today, how long will it take to reach a minimum of $50,000 compounded semi-annually?

Joe Notsosmart invested $10,000 at 8% simple interest for 5 years. How much more would he have received if he had received compound interest annually at the same rate?

The difference between the present value and the future value of a sum of money depends upon:

The future value of an annuity is:

The present value of an investment is:

To determine the present value of a single amount to be received or paid at a future time you need to know all of the following except:

Discounting a future amount of a cash receipt will determine the present value of that receipt.

Judy Bright has just won the lottery. She can elect to receive her winnings in equal payments of $200,000 a year for the next ten years on December 31 or to receive $2,000,000 immediately. If the current interest rate is 6%, which choice will provide the highest amount:

A note that does not include an interest rate should be recorded at:

The lower the discount rate of an investment, the lower the present value of the investment.

The market price of a bond is equal to its present value.

The time value of money is based on the idea that:

The future value of an investment gradually increases toward the present amount.

The future amount of an annuity is calculated by multiplying the present value of the annuity by its applicable factor from a table.

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