Question 1

Which table has a factor of 1.00000 for 1 period at every interest rate?

Accepted Answer

A)  Future value of 1 
B)  Present value of 1 
C)  Future value of an ordinary annuity of 1 
D)  Present value of an ordinary annuity of 1

Question 2

Altman Company will invest €500,000 today. The investment will earn 6% for 5 years, with no funds withdrawn. In 5 years, the amount in the investment fund is

Accepted Answer

A)  €500,000. 
B)  €650,000. 
C)  €669,115. 
D)  €402,087.

Question 3

Stech Co. is issuing $6.5 million 12% bonds in a private placement on July 1, 2019. Each £1,000 bond pays interest semi-annually on December 31 and June 30 of each year. The bonds mature in ten years. At the time of issuance, the market interest rate for similar types of bonds was 8%. What is the expected selling price of the bonds?

Accepted Answer

A)  £8,266,764. 
B)  £13,566,992. 
C)  £8,244,598. 
D)  £8,310,962.

Question 4

The unknown present value is always a larger amount than the known future value because dollars received currently are worth more than dollars to be received in the future.

Accepted Answer

A) True 
 B)False

Question 5

Renfro Corporation will invest £40,000 every December 31st for the next six years (2018 - 2023). If Renfro will earn 12% on the investment, what amount will be in the investment fund on December 31, 2023?

Accepted Answer

A)  £164,456 
B)  £184,192 
C)  £324,608 
D)  £363,560

Question 6

If the compounding period is less than one year, the annual interest rate must be converted to the compounding period interest rate by dividing the annual rate by the number of compounding periods per year.

Accepted Answer

A) True 
 B)False

Question 7

If you invest €50,000 to earn 8% interest, which of the following compounding approaches would return the lowest amount after one year?

Accepted Answer

A)  Daily 
B)  Monthly 
C)  Quarterly 
D)  Annually

Question 8

Spencer Corporation will invest €20,000 every December 31st for the next six years (2018 - 2023). If Spencer will earn 12% on the investment, what amount will be in the investment fund on December 31, 2023?

Accepted Answer

A)  €82,228 
B)  €92,096 
C)  €162,304 
D)  €181,780

Question 9

John won a lottery that will pay him €200,000 at the end of each of the next twenty years. Assuming an appropriate interest rate is 8% compounded annually, what is the present value of this amount?

Accepted Answer

A)  €2,120,720 
B)  €42,910 
C)  €1,963,630 
D)  €9,152,392

Question 10

Jamison Company uses IFRS for its financial reporting. It produces machines that sell globally. All sales are accompanied by a one-year warranty. At the end of the year, the company has the following data:
-2,500 units were sold during the year.
-The trend over the past five years has been that 4% of the machines were defective in some way and had to be repaired. Of this 4%, half required a full replacement at a cost of £3,000 per unit and half were able to be repaired at an average cost of £300.
What is the expected value of the warranty cost provision?

Accepted Answer

A)  £300,000 
B)  £165,000 
C)  £330,000 
D)  £150,000

Question 11

Hiller Corporation makes an investment today (January 1, 2018). They will receive €30,000 every December 31st for the next six years (2018 - 2023). If Hiller wants to earn 12% on the investment, what is the most they should invest on January 1, 2018?

Accepted Answer

A)  €123,342 
B)  €138,144 
C)  €243,456 
D)  €272,670

Question 12

At the end of two years, what will be the balance in a savings account paying 6% annually if €10,000 is deposited today? The future value of one at 6% for one period is 1.06.

Accepted Answer

A)  €10,000 
B)  €10,600 
C)  €11,200 
D)  €11,236

Question 13

On July 1, 2018, Ed Wynne signed an agreement to operate as a franchisee of Kwik Foods, Inc., for an initial franchise fee of £240,000. Of this amount, £80,000 was paid when the agreement was signed and the balance is payable in four equal annual payments of £40,000 beginning July 1, 2019. The agreement provides that the down payment is not refundable and no future services are required of the franchisor. Wynne's credit rating indicates that he can borrow money at 14% for a loan of this type. Information on present and future value factors is as follows:

Accepted Answer

A)  £174,400. 
B)  £196,400. 
C)  £240,000. 
D)  £270,400.

Question 14

On January 1, 2019, Haley Co. issued ten-year bonds with a face amount of €5,000,000 and a stated interest rate of 8% payable annually on January 1. The bonds were priced to yield 10%. Present value factors are as follows:

Accepted Answer

A)  €5,000,000. 
B)  €4,900,000. 
C)  €4,600,000. 
D)  €4,388,000.

Question 15

What best describes the time value of money?

Accepted Answer

A)  The interest rate charged on a loan. 
B)  Accounts receivable that are determined uncollectible. 
C)  An investment in a checking account. 
D)  The relationship between time and money.

Question 16

Korman Company wishes to accumulate €500,000 by May 1, 2025 by making 8 equal annual deposits beginning May 1, 2017 to a fund paying 8% interest compounded annually. What is the required amount of each deposit?

Accepted Answer

A)  €87,008 
B)  €47,007 
C)  €43,525 
D)  €50,390

Question 17

What is the present value today of £6,000 to be received six years from today?

Accepted Answer

A)  £6,000 × 0.909 × 6 
B)  £6,000 × 0.751 × 2 
C)  £6,000 × 0.621 × 0.909 
D)  £6,000 × 0.683 × 3

Question 18

An amount is deposited for eight years at 8%. If compounding occurs quarterly, then the table value is found at

Accepted Answer

A)  8% for eight periods. 
B)  2% for eight periods. 
C)  8% for 32 periods. 
D)  2% for 32 periods.

Question 19

Lucy and Fred want to begin saving for their baby's college education. They estimate that they will need €200,000 in eighteen years. If they are able to earn 6% per annum, how much must be deposited at the beginning of each of the next eighteen years to fund the education?

Accepted Answer

A)  €6,471 
B)  €6,105 
C)  €11,111 
D)  €5,924

Question 20

What amount should be deposited in a bank account today to grow to €10,000 three years from today?

Accepted Answer

A)  €10,000 × 1.260 
B)  €10,000 × 1.260 × 3 
C)  €10,000 ÷ 1.260 
D)  €10,000 ÷ 1.080 × 3

Exam 6: Accounting and the Time Value of Money