Question 1

Dunston Company will receive $200,000 in a future year.If the future receipt is discounted at an interest rate of 10%, its present value is $102,632.In how many years is the $200,000 received?

Accepted Answer

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

Question 2

What amount should an individual have in a 10% bank account today before withdrawal if $5,000 is needed each year for four years with the first withdrawal to be made today and each subsequent withdrawal at one-year intervals? (The balance in the bank account should be zero after the fourth withdrawal.)

Accepted Answer

A) $5,000 + ($5,000 × 0.909) + ($5,000 × 0.826) + ($5,000 × 0.751) 
B) $5,000 ÷ 0.683 × 4 
C) ($5,000 × 0.909) + ($5,000 × 0.826) + ($5,000 × 0.751) + ($5,000 × 0.683) 
D) $5,000 ÷ 0.909 × 4

Question 3

Which table would you use to determine how much must be deposited now in order to provide for 5 annual withdrawals at the beginning of each year, starting one year hence?

Accepted Answer

A) Future value of an ordinary annuity of 1 
B) Future value of an annuity due of 1 
C) Present value of an annuity due of 1 
D) None of these answer choices are correct.

Question 4

Ziggy is considering purchasing a new car.The cash purchase price for the car is $35,000.What is the annual interest rate if Ziggy is required to make annual payments of $8,100 at the end of the next five years?

Accepted Answer

A) 4% 
B) 5% 
C) 6% 
D) 7%

Question 5

Paula purchased a house for $300,000.After providing a 20% down payment, she borrowed the balance from the local savings and loan under a 30-year 6% mortgage loan requiring equal monthly installments at the end of each month.Which time value concept would be used to determine the monthly payment?

Accepted Answer

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

Question 6

Angie invested $100,000 she received from her grandmother today in a fund that is expected to earn 10% per annum.To what amount should the investment grow in five years if interest is compounded semi-annually?

Accepted Answer

A) $155,134 
B) $161,050 
C) $162,890 
D) $177,156

Question 7

Barkley Company will receive $300,000 in a future year.If the future receipt is discounted at an interest rate of 8%, its present value is $189,051.In how many years is the $300,000 received?

Accepted Answer

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

Question 8

Anna has $30,000 to invest.She requires $50,000 for a down payment for a house.If she is able to invest at 6%, how many years will it be before she will accumulate the desired balance?

Accepted Answer

A) 6 years 
B) 7 years 
C) 8 years 
D) 9 years

Question 9

Compound interest, rather than simple interest, must be used to properly evaluate long- term investment proposals.

Accepted Answer

A) True 
 B)False

Question 10

Tipson Corporation will invest $30,000 every January 1st for the next six years (2015 - 2020).If Linton will earn 12% on the investment, what amount will be in the investment fund on December 31, 2020?

Accepted Answer

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

Question 11

A series of equal receipts at equal intervals of time when each receipt is received at the beginning of each time period is called an

Accepted Answer

A) ordinary annuity. 
B) annuity in arrears. 
C) annuity due. 
D) unearned receipt.

Question 12

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 13

Barber Company will receive $1,000,000 in 7 years.If the appropriate interest rate is 10%, the present value of the $1,000,000 receipt is

Accepted Answer

A) $510,000. 
B) $513,160. 
C) $1,510,000. 
D) $1,948,720.

Question 14

Jonas won a lottery that will pay him $125,000 at the end of each of the next twenty years.Zebra Finance has offered to purchase the payment stream for $1,699,000.What interest rate (to the nearest percent) was used to determine the amount of the payment?

Accepted Answer

A) 7% 
B) 6% 
C) 5% 
D) 4%

Question 15

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 16

What interest rate (the nearest percent) must Charlie earn on a $300,000 investment today so that he will have $760,000 after 12 years?

Accepted Answer

A) 6% 
B) 7% 
C) 8% 
D) 9%

Question 17

What would you pay for an investment that pays you $20,000 at the end of each year for the next twenty years? Assume that the relevant interest rate for this type of investment is 12%.

Accepted Answer

A) $167,316 
B) $1,441,048 
C) $20,734 
D) $149,388

Question 18

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 19

Stech Co.is issuing $6.5 million 12% bonds in a private placement on July 1, 2015.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 20

Ethan has $50,000 to invest today at an annual interest rate of 4%.Approximately how many years will it take before the investment grows to $101,250?

Accepted Answer

A) 18 years 
B) 20 years 
C) 16 years 
D) 11 years

Exam 6: Accounting and the Time Value of Money