Question 1

If I invest $50,000 today for 5 years and it grows to $84,550,what rate of interest have I received? Use Table FA-1.

Accepted Answer

A) 5% 
B) 6% 
C) 10% 
D) 12% 
A) 5% 
B) 6% 
C) 10% 
D) 12% C

Question 2

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. B

Question 3

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

Accepted Answer

The relationship between present and future value amounts assume that the interest earned on an investment can be reinvested rather than withdrawn.Compound interest thus means that interest can be earned on previously earned reinvested interest.Over time,an investment in which interest is compounded continuously will increase to oftentimes very large amounts.

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

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

Question 6

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 5% to accumulate enough for you to take this trip? Use Table PV-1.

Accepted Answer

A) $3,287.72 
B) $3,456.00 
C) $4,499.44 
D) $3,161.24 
A) $3,287.72 
B) $3,456.00 
C) $4,499.44 
D) $3,161.24

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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 9

Powers Company wishes to issue $2,000,000 of 8%,10-year bonds that pay interest semi-annually.The current discount rate is 6%.What amount should the bonds sell for?

Accepted Answer

The answer of Powers Company wishes to issue $2,000,000 of...

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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.

Question 12

If you invested $10,000 at 6% on your 20th birthday how much would you have on your 40th birthday? Use Table FA-1.

Accepted Answer

A) $32,070.00 
B) $31,180.00 
C) $36,785.59 
D) $12,158.12 
A) $32,070.00 
B) $31,180.00 
C) $36,785.59 
D) $12,158.12

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

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) 37 years 
C) 9 and ½ years 
D) 17 years 
A) 5 years 
B) 37 years 
C) 9 and ½ years 
D) 17 years

Question 15

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 16

A scholarship fund has $75,000 to invest now to provide scholarships to high school students.They want to have at least $150,000 in 9 years.What rate of interest must they invest this money at to reach their goal? Use Table PV-1.

Accepted Answer

A) 7% 
B) 8% 
C) 10% 
D) 11% 
A) 7% 
B) 8% 
C) 10% 
D) 11%

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

How much must I invest today in order to have $25,000 in 5 years assuming 12% interest compounded annually? Use Table PV-1.

Accepted Answer

A) $14,175.00 
B) $15,888.00 
C) $18,681.50 
D) $17.624.00 
A) $14,175.00 
B) $15,888.00 
C) $18,681.50 
D) $17.624.00

Question 20

Consider the two questions related to Barbara,who wants to purchase a car.
(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 (appro

Exam 27: the Time Value of Money: Future Amounts and Present Values

If I invest $50,000 today for 5 years and it grows to $84,550,what rate of interest have I received? Use Table FA-1.

Compound interest:

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

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

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

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 5% to accumulate enough for you to take this trip? Use Table PV-1.

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

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

Powers Company wishes to issue $2,000,000 of 8%,10-year bonds that pay interest semi-annually.The current discount rate is 6%.What amount should the bonds sell for?

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

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?

If you invested $10,000 at 6% on your 20th birthday how much would you have on your 40th birthday? Use Table FA-1.

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

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

The future value of an annuity is:

A scholarship fund has $75,000 to invest now to provide scholarships to high school students.They want to have at least $150,000 in 9 years.What rate of interest must they invest this money at to reach their goal? Use Table PV-1.

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

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

How much must I invest today in order to have $25,000 in 5 years assuming 12% interest compounded annually? Use Table PV-1.

Consider the two questions related to Barbara,who wants to purchase a car. (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?

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

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