Question 1

Discounting a future amount of a cash receipt will determine the present value of that receipt.

Accepted Answer

A) True 
 B)False  True

Question 2

As the discount rate required by an investor increases, the present value of an investment decreases.

Accepted Answer

A) True 
 B)False  True

Question 3

The obligation for deferred income taxes is the only long-term liability that is not reported at its present value.

Accepted Answer

A) True 
 B)False  True

Question 4

Anthony Driver wants to buy a new car in 4 years. He knows that he can earn 6% interest compounded semi-annually. How much must he deposit now in order to have $26,000 at the end of 4 years?

Accepted Answer

A)   $21,390.20.
B)   $20,524.66.
C)   $38,413.96.
D)   $31.603.26.

Question 5

Use the tables to determine the answers to the following:
(1) How much must be invested now for 5 periods at 6% to amount to $15,000?
(2) How much is $3,000 invested now at 8% in 8 periods worth?
(3) How much is $25,000 compounded quarterly at 12% for 4 years?

Accepted Answer

The answer of Use the tables to determine the answers...

Question 6

If you receive $20,000 as a gift and invest it at 12% compounded quarterly, how much will you have at the end of three years?

Accepted Answer

A)   $32,020.60.
B)   $28,515.20.
C)   $22,497.20.
D)   $14,027.60.

Question 7

The present value of a single amount is calculated by multiplying the future amount by the present value of $1 table.

Accepted Answer

A) True 
 B)False

Question 8

To determine the amount to be deposited in a bank today to grow to $5,000 three years from now at 7% which table should be used?

Accepted Answer

A)   Present value of 1.
B)   Future value of 1.
C)   Present value of an annuity.
D)   No table is required, just multiply $5,000 by 1.07.

Question 9

Joe Notsosmart invested $10,000 at 8% simple interest for 5 years. How much more would he have received if he had received compound interest annually at the same rate?

Accepted Answer

A)   $4,000.
B)   $4,693.
C)   $693.
D)   $400.

Question 10

The present value of a cash amount:

Accepted Answer

A)   Is always less than the future value.
B)   Is always more than the future value.
C)   Is the same as the future value.
D)   Is the same as the actual cash value.

Question 11

(a) How long will it take Barbara to accumulate $30,000 to buy a car if she invests $15,000 at 5%? (b) How long will it take if she invests the same amount at 4% semi-annually?

Accepted Answer

The answer of (a) How long will it take Barbara...

Question 12

The future amount of an annuity is calculated by multiplying the periodic payment amount by the discounted factor from the future value of an annuity table.

Accepted Answer

A) True 
 B)False

Question 13

How much must I invest today in order to have $25,000 in 5 years assuming 12% interest compounded annually?

Accepted Answer

A)   $14,185.75.
B)   $15,888.00.
C)   $18,681.50.
D)   $17.624.00.

Question 14

Joan is 75 years old and wishes to retire. She needs to have $48,000 a year plus her social security to live in the style she is accustomed to. She would like to have enough money in her retirement account which earns 5% compounded annually to support her for the next 15 years. How much must be in the fund if she takes the first payment at year-end?

Accepted Answer

The answer of Joan is 75 years old and wishes...

Question 15

Compounding interest assumes the interest on an investment is reinvested.

Accepted Answer

A) True 
 B)False

Question 16

Explain what is meant by the "time value of money." Provide examples.

Accepted Answer

The answer of Explain what is meant by the "time...

Question 17

The lower the discount rate of an investment, the lower the present value of the investment.

Accepted Answer

A) True 
 B)False

Question 18

An interest rate of 12% a year is the same as 6% for 2 months.

Accepted Answer

A) True 
 B)False

Question 19

The present value of an investment is:

Accepted Answer

A)   The amount an investor would pay today to receive a certain amount in the future.
B)   The amount an investor would pay today plus the interest the investor would expect to receive a certain amount in the future.
C)   The amount an investor would pay today less the interest the investor requires.
D)   90% of the future value of an investment.

Question 20

If you invested $10,000 at 6% on your 20th birthday how much would you have on your 40th birthday?

Accepted Answer

A)   $32,071.40.
B)   $31,180.00.
C)   $36,785.59.
D)   $12,158.12.

Exam 16: The Time Value of Money

Discounting a future amount of a cash receipt will determine the present value of that receipt.

As the discount rate required by an investor increases, the present value of an investment decreases.

The obligation for deferred income taxes is the only long-term liability that is not reported at its present value.

Anthony Driver wants to buy a new car in 4 years. He knows that he can earn 6% interest compounded semi-annually. How much must he deposit now in order to have $26,000 at the end of 4 years?

Use the tables to determine the answers to the following: (1) How much must be invested now for 5 periods at 6% to amount to $15,000? (2) How much is $3,000 invested now at 8% in 8 periods worth? (3) How much is $25,000 compounded quarterly at 12% for 4 years?

If you receive $20,000 as a gift and invest it at 12% compounded quarterly, how much will you have at the end of three years?

The present value of a single amount is calculated by multiplying the future amount by the present value of $1 table.

To determine the amount to be deposited in a bank today to grow to $5,000 three years from now at 7% which table should be used?

Joe Notsosmart invested $10,000 at 8% simple interest for 5 years. How much more would he have received if he had received compound interest annually at the same rate?

The present value of a cash amount:

(a) How long will it take Barbara to accumulate $30,000 to buy a car if she invests $15,000 at 5%? (b) How long will it take if she invests the same amount at 4% semi-annually?

The future amount of an annuity is calculated by multiplying the periodic payment amount by the discounted factor from the future value of an annuity table.

How much must I invest today in order to have $25,000 in 5 years assuming 12% interest compounded annually?

Compounding interest assumes the interest on an investment is reinvested.

Explain what is meant by the "time value of money." Provide examples.

The lower the discount rate of an investment, the lower the present value of the investment.

An interest rate of 12% a year is the same as 6% for 2 months.

The present value of an investment is:

If you invested $10,000 at 6% on your 20^th birthday how much would you have on your 40^th birthday?