Question 1

Present value is

Accepted Answer

A)  how much today's money will be worth in the future. 
B)  the amount of money that must be invested now to produce a known future value. 
C)  always larger than the future value. 
D)  the total cost of interest over several years.

Question 2

How much is interest revenue for 30 days on an 8%, 90-day note receivable with a face value of $6,000?

Accepted Answer

A)  $40 
B)  $50 
C)  $90 
D)  $60

Question 3

-Clarkson Corporation earns 12% on an investment that will return $900,000, 7 years from now. Below is some of the time value of money information that Clarkson has compiled that might help in planning compounded interest decisions.  To the closest dollar, what is the amount Clarkson should invest now to earn this rate of return?

Accepted Answer

A)  $198,961 
B)  $407,115 
C)  $756,000 
D)  $410,738

Question 4

An amount is deposited for five years at 6% and is compounded semi-annually. Which interest rate and periods will be used to determine the present value?

Accepted Answer

A)  8% for 5 periods 
B)  3% for 10 periods 
C)  3% for 2.5 periods 
D)  8% for 10 periods

Question 5

How does an annuity due differ from an ordinary annuity?

Accepted Answer

The answer of How does an annuity due differ from...

Question 6

-Karla Simpson invested $15,000 at 10% annual interest and left the money invested without withdrawing any of the interest for 15 years. At the end of the 15 years, Karla decided to withdraw the accumulated amount of money. Karla has found the following values in various tables related to the time value of money.  Which factor would she use to compute the amount she would withdraw, assuming that the investment earns interest compounded annually?

Accepted Answer

A)  0.23939 
B)  4.17725 
C)  7.60608 
D)  31.77248

Question 7

The following computation took place: $20,000 divided by the future value of a 12-year, 4% ordinary annuity
What question will this computation answer?

Accepted Answer

A)  How much must be invested now so that equal payments can be withdrawn at the end of each year for 12 years? 
B)  How much must be invested now so that $20,000 is accumulated by the end of the 12th year? 
C)  How much will be available at the end of the12th year if a payment of $20,000 is deposted now? 
D)  How much must be deposited at the end of every year so that $20,000 is available at the end of 12 years?

Question 8

Carter Holding Co. intends to purchase a new accounting system, including hardware, software and a complete package of services needed to get the new system up and running. Carter has four options for paying for the new system. Which of the four options is the least costly if the applicable interest rate is 12%?

Accepted Answer

A)  Make a lump sum payment of $100,000 today 
B)  Make 10 annual payments of $16,000, starting today 
C)  Make 40 quarterly payments of $4,000, starting today 
D)  Make one lump sum payment of $150,000 four years from today

Question 9

-For each of the following situations in A through D, indicate the abbreviation of the table that should be used to solve for the solution requested. Place the abbreviation of the respective table in the space provided. You may use each table more than once or not at all.
  _______A. How much would an investor deposit today in order to withdraw $12,000 at the beginning of each of the next four years, assuming that the first payment is withdrawn one year from today?
_______B. If interest rates are compounded semi-annually, how much will a company accumulate in three years after making six equal semi-annual payments of $15,000 each? The first payment will be made today.
_______C. If interest rates are compounded monthly, how much can a company withdraw per month for 6 months beginning one month from now if $100,000 is deposited today?
_______D. You want to buy a house for $200,000 and finance it with interest compounded monthly. If it is financed over a 12?year period, what will be the amount of each annual payment, the first of which will be due at the beginning of the first year?

Accepted Answer

The answer of 
-For each of the following situations in...

Question 10

-Everett Corporation issues a 8%, 9-year mortgage note on January 1, 2009, to obtain financing for new equipment. Land is used as collateral for the note. The terms provide for semiannual installment payments of $131,600. The following values related to the time value of money were available to Everett to help them with their planning process and compounded interest decisions.  To the closest dollar, what were the cash proceeds received from the issuance of the note?

Accepted Answer

A)  $822,091 
B)  $947,520 
C)  $1,665,964 
D)  $1,643,363

Question 11

Interest is compounded annually. What is the total amount of interest on a $7,000 note payable at the end of five years at 8%?

Accepted Answer

A)  $3,000 
B)  $3,285 
C)  $7,000 
D)  $3,791

Question 12

Interest is compounded quarterly on a $10,000 note payable for 1 year at 12%. How much is total interest on the note?

Accepted Answer

A)  $1,338 
B)  $1,286 
C)  $1,255 
D)  $1,506

Question 13

Malcom Corp. will deposit $10,000 annually at the end of each year for five years. Malcom will earn 6%. How much will be accumulated at the end of the 5 years?

Accepted Answer

A)  $65,321 
B)  $70,399 
C)  $50,000 
D)  $56,371

Question 14

You need to calculate the present value of an amount at 10% compounded quarterly for 2 years. What interest factor will you use?

Accepted Answer

A)  10% for 4 periods 
B)  2.5% for 8 periods 
C)  20% for 2 periods 
D)  10% for 8 periods

Question 15

Flores Company borrowed $10,000 at 10% interest for 5 years. Which statement is true?

Accepted Answer

A)  Regardless of when the note is repaid, total interest over the loan period is the same. 
B)  Interest expense is the same regardless of the compounding periods. 
C)  The amount to be repaid is the same regardless of whether the principal is repaid $2,000 per year, or as a sum at the end of five years. 
D)  Interest is less if simple interest is used than if compound interest is used.

Question 16

-Harrison Marshall borrowed $65,000 on June 1, 2009. This amount plus accrued interest at 8% compounded annually is to be repaid on June 1, 2022. Harrison has obtained the following values related to the time value of money to help him with his financing process and compounded interest decisions.  To the closest dollar, how much will Harrison have to repay on June 1, 2022?

Accepted Answer

A)  $132,600 
B)  $310,707 
C)  $116,375 
D)  $176,775

Question 17

-Stranton Company is considering investing in an annuity contract that will return $40,000 annually at the end of each year for 12 years. Stranton has obtained the following values related to the time value of money to help in its planning process and compounded interest decisions.  To the closest dollar, what amount should Stranton Company pay for this investment if it earns a 9% return?

Accepted Answer

A)  $497,066 
B)  $592,507 
C)  $805,629 
D)  $286,429

Question 18

Calculate the contract price of equipment that requires 20 annual payments of $5,000 at the end of each year, beginning one year after the purchase contract is signed. The interest rate expressed in the loan is 7%.

Accepted Answer

The answer of Calculate the contract price of equipment that...

Question 19

-Rowan and Lisa Sharp invested $10,000 in a savings account paying 5% annual interest when their son, Jeremy, was born. They also deposited $500 on each of his birthdays until he was 20 (including his 20th birthday). Rowan and Lisa have obtained the following values related to the time value of money to help them with their planning process for their compounded interest decisions.  To the closest dollar, how much was in the savings account on his 20th birthday (after the last deposit)?

Accepted Answer

A)  $53,066 
B)  $43,066 
C)  $30,000 
D)  $26,533

Question 20

-Jim Hall invested $12,000 at 8% annual interest and left the money invested without withdrawing any of the interest for 15 years. At the end of the 15 years, Jim withdrew the accumulated amount of money. What amount did Jim withdraw, assuming the investment earns compounded interest?

Accepted Answer

A)  $14,400 
B)  $38,066 
C)  $26,400 
D)  $15,783

Exam 15: The Time Value of Money