Question 1

Marvin's Manufacturing can invest in a new process, but will need to purchase new equipment. The cost of the equipment is $75,000 and needs to be in place in 8 years. The company invests the money at 8% interest compounded semiannually. How much will they need to invest in order to have $75,000 in 8 years?

Accepted Answer

$40,043.25 (or $40,043.14)
This problem will typically be solved using the Present Value of a Single Amount Table for 16 periods at 4%. The problem can also be solved using the Future Value of a Single Amount Table for 16 periods at 4%. Although the latter is less conventional, it will produce the correct answer. However, the answers will differ slightly due to rounding of the tables to five decimal places.
Periods 8 years * 2 = 16
Rate:  Present Value of a Single Amount:
$75,000 x PV of a Single Amount, 16 periods, 4%
$75,000 * 0.53391 = $40,043.25
Future Value of a Single Amount:
$75,000 / FV of a Single Amount, 16 periods, 4%
$75,000 / 1.87298 = $40,043.14

Question 2

Merlin is saving money to purchase a new car. If he deposits $5,000 into a saving account that pays 8% interest, compounded semi-annually, how much will he have in his account at the end of the first year?

Accepted Answer

A)  $5,400.00
B)  $5,200.00
C)  $5,408.00
D)  $5,008.00 C

Question 3

The future value of a single amount is the original cash flow plus simple interest as of a specific future date.

Accepted Answer

A) True 
 B)False  False

Question 4

Tom is saving for an engagement ring. If he deposits $500 payments into an account (one at the end of each year)that earns 6% interest compounded annually, how much will he have saved by the end of the 10th year?

Accepted Answer

A)  $895.42
B)  $13,435.18
C)  $6,590.39
D)  $6,554.39

Question 5

Mark is planning on making an investment in a new computer system. He wants to know how much he must invest to have $9,000 in 4 years if the interest rate is 5% per year?

Accepted Answer

A)  $10,939.59
B)  $2,479.41
C)  $7,826.83
D)  $7,404.30

Question 6

The _______________ treats the present value as a liability that will be paid through a series of equal payments.

Accepted Answer

The answer of The _______________ treats the present value as...

Question 7

In transactions involving the borrowing or lending of money, as interest is paid, the balance in the liability account of the borrower

Accepted Answer

A)  decreases.
B)  increases.
C)  remains unchanged.
D)  is transferred to interest income

Question 8

The first cash flow in the future value of an annuity occurs when?

Accepted Answer

A)  At the start of the first period.
B)  At the maturity date of the loan.
C)  When interest is collected.
D)  At the end of the first period.

Question 9

You just won the lottery and have elected to receive 10 annual payments instead of the lump sum of $74,818.59. Calculate the amount of your annual payment assuming a 6% interest rate.

Accepted Answer

A)  $17,178.90
B)  $10,165.44
C)  $18,000.00
D)  $10,832.11

Question 10

Beach Catering sold its business for $75,000 under an asset purchase agreement. Under the agreement, the buyer made an initial payment of $35,000 which Beach Catering invested at 6% compounded semiannually. At the beginning of the fourth year, the balance of the purchase price was paid by the buyer. Beach Catering places this $40,000 in the same investment with interest compounded semiannually at 6%. At the end of 6 years, how much does Beach Catering have in its investment account?

Accepted Answer

The answer of Beach Catering sold its business for $75,000...

Question 11

If the stated interest rate is 12% per year, but it is compounded semiannually, then the adjusted rate used for present or future value calculations will be

Accepted Answer

A)  12% per year.
B)  3% per quarter.
C)  6% per 6-month period.
D)  1% per 6-month period.

Question 12

What is the interest rate of a single $20,000 cash flow in 3 years if the present value is $15,443.60?

Accepted Answer

A)  7%
B)  8%
C)  9%
D)  10%

Question 13

Jack and Jill are saving for a house. How much will they have saved if they make 8 deposits of $5,000 each (one at the end of each year)into an account that earns 4% interest compounded annually?

Accepted Answer

A)  $51,169.86
B)  $63,732.74
C)  $46,071.15
D)  $49,506.11

Question 14

Compound interest is a method of calculating the time value of money in which interest
is earned on the previous periods' interest.

Accepted Answer

A) True 
 B)False

Question 15

An investor expects to receive payments of $3,000 every 6 months for the next 7 years. If the market rate of interest is 4% per year compounded semi-annually, what is the future value of these payments?

Accepted Answer

A)  $22,302.84
B)  $23,694.87
C)  $47,921.82
D)  $54,875.73

Question 16

Interest may only be charged to a borrower by a bank.

Accepted Answer

A) True 
 B)False

Question 17

Manatee Manufacturing sells a piece of equipment to make room for new machinery. Manatee will receive the sales price of $50,000 at the end of 4 years. Assuming interest at a rate of 6% per year, the Present Value of this future cash flow is how much?

Accepted Answer

A)  $39,604.50
B)  $39,515.50
C)  $63,124.00
D)  $173,255.50

Question 18

The initial amount of money borrowed or loaned is also known as the future value of cash flows.

Accepted Answer

A) True 
 B)False

Question 19

Cash flows that are equal and occur multiple times, one period apart are called Annuities.

Accepted Answer

A) True 
 B)False

Question 20

The journal entry to record the interest income from an annuity would include a

Accepted Answer

A)  debit to interest income.
B)  credit to interest income.
C)  debit to interest expense.
D)  None of the above.

Exam 14: Time Value of Money

Merlin is saving money to purchase a new car. If he deposits $5,000 into a saving account that pays 8% interest, compounded semi-annually, how much will he have in his account at the end of the first year?

The future value of a single amount is the original cash flow plus simple interest as of a specific future date.

Tom is saving for an engagement ring. If he deposits $500 payments into an account (one at the end of each year) that earns 6% interest compounded annually, how much will he have saved by the end of the 10^th year?

Mark is planning on making an investment in a new computer system. He wants to know how much he must invest to have $9,000 in 4 years if the interest rate is 5% per year?

The _______________ treats the present value as a liability that will be paid through a series of equal payments.

In transactions involving the borrowing or lending of money, as interest is paid, the balance in the liability account of the borrower

The first cash flow in the future value of an annuity occurs when?

You just won the lottery and have elected to receive 10 annual payments instead of the lump sum of $74,818.59. Calculate the amount of your annual payment assuming a 6% interest rate.

If the stated interest rate is 12% per year, but it is compounded semiannually, then the adjusted rate used for present or future value calculations will be

What is the interest rate of a single $20,000 cash flow in 3 years if the present value is $15,443.60?

Jack and Jill are saving for a house. How much will they have saved if they make 8 deposits of $5,000 each (one at the end of each year) into an account that earns 4% interest compounded annually?

Compound interest is a method of calculating the time value of money in which interest is earned on the previous periods' interest.

An investor expects to receive payments of $3,000 every 6 months for the next 7 years. If the market rate of interest is 4% per year compounded semi-annually, what is the future value of these payments?

Interest may only be charged to a borrower by a bank.

Manatee Manufacturing sells a piece of equipment to make room for new machinery. Manatee will receive the sales price of $50,000 at the end of 4 years. Assuming interest at a rate of 6% per year, the Present Value of this future cash flow is how much?

The initial amount of money borrowed or loaned is also known as the future value of cash flows.

Cash flows that are equal and occur multiple times, one period apart are called Annuities.

The journal entry to record the interest income from an annuity would include a

Exam 14: Time Value of Money

Merlin is saving money to purchase a new car. If he deposits $5,000 into a saving account that pays 8% interest, compounded semi-annually, how much will he have in his account at the end of the first year?

The future value of a single amount is the original cash flow plus simple interest as of a specific future date.

Tom is saving for an engagement ring. If he deposits $500 payments into an account (one at the end of each year) that earns 6% interest compounded annually, how much will he have saved by the end of the 10th year?

Mark is planning on making an investment in a new computer system. He wants to know how much he must invest to have $9,000 in 4 years if the interest rate is 5% per year?

The _______________ treats the present value as a liability that will be paid through a series of equal payments.

In transactions involving the borrowing or lending of money, as interest is paid, the balance in the liability account of the borrower

The first cash flow in the future value of an annuity occurs when?

You just won the lottery and have elected to receive 10 annual payments instead of the lump sum of $74,818.59. Calculate the amount of your annual payment assuming a 6% interest rate.

If the stated interest rate is 12% per year, but it is compounded semiannually, then the adjusted rate used for present or future value calculations will be

What is the interest rate of a single $20,000 cash flow in 3 years if the present value is $15,443.60?

Jack and Jill are saving for a house. How much will they have saved if they make 8 deposits of $5,000 each (one at the end of each year) into an account that earns 4% interest compounded annually?

Compound interest is a method of calculating the time value of money in which interest is earned on the previous periods' interest.

An investor expects to receive payments of $3,000 every 6 months for the next 7 years. If the market rate of interest is 4% per year compounded semi-annually, what is the future value of these payments?

Interest may only be charged to a borrower by a bank.

Manatee Manufacturing sells a piece of equipment to make room for new machinery. Manatee will receive the sales price of $50,000 at the end of 4 years. Assuming interest at a rate of 6% per year, the Present Value of this future cash flow is how much?

The initial amount of money borrowed or loaned is also known as the future value of cash flows.

Cash flows that are equal and occur multiple times, one period apart are called Annuities.

The journal entry to record the interest income from an annuity would include a

Tom is saving for an engagement ring. If he deposits $500 payments into an account (one at the end of each year) that earns 6% interest compounded annually, how much will he have saved by the end of the 10^th year?