Question 1

To calculate the present value of four annual installments of $1,000 at an 8% interest rate beginning on January 1, 2016 and payments due on December 31 of each year, one would use the present value of an ordinary annuity table.

Accepted Answer

A) True 
 B)False

Question 2

Stacey has $5,000,000 on deposit in a fund that earns 9% interest compounded annually. How much can Stacey withdraw annually from the fund in ten equal annual withdrawals to completely deplete the fund after the tenth draw, assuming the first withdrawal occurs one year from today?

Accepted Answer

A)  $450,000 
B)  $714,771 
C)  $779,100 
D)  $555,555

Question 3

A beginning accounting student comes to you with the following question, "What is the time value of money and does it relate to interest?"
Required:
Explain the two concepts and how they are related.

Accepted Answer

The answer of A beginning accounting student comes to you...

Question 4

Interest compounded quarterly on a $100,000 principal amount at 12% for one year is

Accepted Answer

A)  $11,151. 
B)  $12,000. 
C)  $12,551. 
D)  $12,683.

Question 5

The formula to compute the future value of a single sum is$$F V = P V \times ( 1 + n ) ^ { r }.$$

Accepted Answer

A) True 
 B)False

Question 6

What four conditions must exist in solving measurement problems involving the use of annuities?

Accepted Answer

The answer of What four conditions must exist in solving...

Question 7

The formula for the future value of an ordinary annuity of any amount is:
 $$F V _ { O } = C \times \left[ \frac { ( 1 + n ) ^ { i } - 1 } { i } \right]$$

Accepted Answer

A) True 
 B)False

Question 8

Balance sheet values are calculated using compound interest present value) calculations for all of the following except

Accepted Answer

A)  bonds payable. 
B)  long-term notes receivable. 
C)  long-term lease liabilities. 
D)  deferred income taxes.

Question 9

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

Accepted Answer

A)  the present value of an ordinary annuity 
B)  the future value of a single sum 
C)  the future value of an ordinary annuity 
D)  all of these

Question 10

In the present value of an annuity table, the factors.

Accepted Answer

A)  increase as the interest rates increase. 
B)  decrease as the periods increase. 
C)  increase as the periods decrease. 
D)  decrease as the interest rates increase.

Question 11

If $100,000 is invested on December 31, 2016 to earn compound interest semiannually, and if the future value on December 31, 2022, is $225,219 what is the semiannual interest rate on the investment?

Accepted Answer

A)  7% 
B)  6% 
C)  5% 
D)  8%

Question 12

The formula to calculate the present value of an ordinary annuity is:
 $$P V o = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n } } } { i } \right]$$

Accepted Answer

A) True 
 B)False

Question 13

Jacob Sawyer will deposit $3,000 into a special account each year beginning December 31, 2016, with the last deposit being made on December 31, 2019. Jacob wants to know how much will be in his account on December 31, 2019, immediately after the final deposit, if the account earns 10% compounded annually. To solve the problem, Jacob must find the future value of

Accepted Answer

A)  a single sum. 
B)  a deferred annuity. 
C)  an ordinary annuity. 
D)  an annuity due.

Question 14

In what situations would a company use present or future value?

Accepted Answer

The answer of In what situations would a company use...

Question 15

Joshua desires to purchase an annuity on January 1, 2014, that yields him five annual cash flows of $10,000 each, with the first cash flow to be received on January 1, 2017. The interest rate is 10% compounded annually. The cost present value) of the annuity on January 1, 2014, is

Accepted Answer

A)  $31,328.81. 
B)  $34,461.70. 
C)  $37,907.87. 
D)  $48,684.19.

Question 16

On September 1, 2014, Watson Company received a loan of $44,940 from One Finance Company. To pay off this loan, Watson Company will have to pay One Finance $10,000 each year for ten years. The first payment is due September 1, 2015. Which interest rate compounded annually is Watson paying on this loan?

Accepted Answer

A)  12% 
B)  15% 
C)  18% 
D)  24%

Question 17

On January 2, 2016, Christopher inherited a trust fund that he could use for college tuition. Christopher hopes to make five equal withdrawals of $40,000 each year for the next five years from the fund that will earn 10% compounded annually. The first withdrawal will be made on January 2, 2017. How much does he need to have invested in the fund on January 2, 2016, to be able to withdraw the needed amounts each year?

Accepted Answer

A)  $151,631 
B)  $200,000 
C)  $244,204 
D)  $268,624

Question 18

The future value of an ordinary annuity is higher if the discount rate is higher.

Accepted Answer

A) True 
 B)False

Question 19

Explain how the factors in a present value of an ordinary annuity table are converted into the factors in a present value of an annuity due table.

Accepted Answer

The answer of Explain how the factors in a present...

Question 20

The future value grows more quickly when interest is compounded monthly than when interest is compounded annually.

Accepted Answer

A) True 
 B)False

Exam 23: Understanding Time Value of Money Formulas and Concepts

To calculate the present value of four annual installments of $1,000 at an 8% interest rate beginning on January 1, 2016 and payments due on December 31 of each year, one would use the present value of an ordinary annuity table.

Stacey has $5,000,000 on deposit in a fund that earns 9% interest compounded annually. How much can Stacey withdraw annually from the fund in ten equal annual withdrawals to completely deplete the fund after the tenth draw, assuming the first withdrawal occurs one year from today?

A beginning accounting student comes to you with the following question, "What is the time value of money and does it relate to interest?" Required: Explain the two concepts and how they are related.

Interest compounded quarterly on a $100,000 principal amount at 12% for one year is

The formula to compute the future value of a single sum is $F V = P V \times ( 1 + n ) ^ { r }.$

What four conditions must exist in solving measurement problems involving the use of annuities?

The formula for the future value of an ordinary annuity of any amount is: $F V _ { O } = C \times \left[ \frac { ( 1 + n ) ^ { i } - 1 } { i } \right]$

Balance sheet values are calculated using compound interest present value) calculations for all of the following except

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

In the present value of an annuity table, the factors.

If $100,000 is invested on December 31, 2016 to earn compound interest semiannually, and if the future value on December 31, 2022, is $225,219 what is the semiannual interest rate on the investment?

The formula to calculate the present value of an ordinary annuity is: $P V o = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n } } } { i } \right]$

In what situations would a company use present or future value?

Joshua desires to purchase an annuity on January 1, 2014, that yields him five annual cash flows of $10,000 each, with the first cash flow to be received on January 1, 2017. The interest rate is 10% compounded annually. The cost present value) of the annuity on January 1, 2014, is

The future value of an ordinary annuity is higher if the discount rate is higher.

Explain how the factors in a present value of an ordinary annuity table are converted into the factors in a present value of an annuity due table.

The future value grows more quickly when interest is compounded monthly than when interest is compounded annually.

Exam 23: Understanding Time Value of Money Formulas and Concepts

To calculate the present value of four annual installments of $1,000 at an 8% interest rate beginning on January 1, 2016 and payments due on December 31 of each year, one would use the present value of an ordinary annuity table.

Stacey has $5,000,000 on deposit in a fund that earns 9% interest compounded annually. How much can Stacey withdraw annually from the fund in ten equal annual withdrawals to completely deplete the fund after the tenth draw, assuming the first withdrawal occurs one year from today?

A beginning accounting student comes to you with the following question, "What is the time value of money and does it relate to interest?" Required: Explain the two concepts and how they are related.

Interest compounded quarterly on a $100,000 principal amount at 12% for one year is

The formula to compute the future value of a single sum is FV=PV×(1+n)r.F V = P V \times ( 1 + n ) ^ { r }.FV=PV×(1+n)r.

What four conditions must exist in solving measurement problems involving the use of annuities?

The formula for the future value of an ordinary annuity of any amount is: FVO=C×[(1+n)i−1i]F V _ { O } = C \times \left[ \frac { ( 1 + n ) ^ { i } - 1 } { i } \right]FVO​=C×[i(1+n)i−1​]

Balance sheet values are calculated using compound interest present value) calculations for all of the following except

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

In the present value of an annuity table, the factors.

If $100,000 is invested on December 31, 2016 to earn compound interest semiannually, and if the future value on December 31, 2022, is $225,219 what is the semiannual interest rate on the investment?

The formula to calculate the present value of an ordinary annuity is: PVo=C×[1−1(1+i)ni]P V o = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n } } } { i } \right]PVo=C×[i1−(1+i)n1​​]

In what situations would a company use present or future value?

Joshua desires to purchase an annuity on January 1, 2014, that yields him five annual cash flows of $10,000 each, with the first cash flow to be received on January 1, 2017. The interest rate is 10% compounded annually. The cost present value) of the annuity on January 1, 2014, is

The future value of an ordinary annuity is higher if the discount rate is higher.

Explain how the factors in a present value of an ordinary annuity table are converted into the factors in a present value of an annuity due table.

The future value grows more quickly when interest is compounded monthly than when interest is compounded annually.

The formula to compute the future value of a single sum is $F V = P V \times ( 1 + n ) ^ { r }.$

The formula for the future value of an ordinary annuity of any amount is: $F V _ { O } = C \times \left[ \frac { ( 1 + n ) ^ { i } - 1 } { i } \right]$

The formula to calculate the present value of an ordinary annuity is: $P V o = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n } } } { i } \right]$