Question 1

A company is setting aside $21,354 today, and wishes to have $30,000 at the end of three years for a down payment on a piece of property. What interest rate must the company earn?

Accepted Answer

The answer of A company is setting aside $21,354 today,...

Question 2

Sandra has a savings account that has accumulated to $50,000. She started with $28,225, and earned interest at 10% compounded annually. It took her five years to accumulate the $50,000.
Calculation: $28,225/$50,000 = 0.5645. This is the present value of 1 factor, 10%, 6 periods.

Accepted Answer

A) True 
 B)False

Question 3

The number of periods in a present value calculation can only be expressed in years.

Accepted Answer

A) True 
 B)False

Question 4

From the perspective of a depositor, a savings account is a liability with interest.

Accepted Answer

A) True 
 B)False

Question 5

Future value can be found if the interest rate (i), the number of periods (n), and the present value (p) are known.

Accepted Answer

A) True 
 B)False

Question 6

Big League Sports borrowed $883,212, and must make annual year-end payments of $120,000 each. If Big League's interest rate is 6%, how many years will it take Big League Sports to pay off the loan?

Accepted Answer

The answer of Big League Sports borrowed $883,212, and must...

Question 7

Madera Iron Sculpting is planning on replacing one of its robotic welders in five years by making a one-time deposit of $20,000 today and four yearly contributions of $5,000 beginning at the end of year 1. The deposits will earn 10% interest. How much money will Sierra have accumulated at the end of five years to replace the welder?

Accepted Answer

The answer of Madera Iron Sculpting is planning on replacing...

Question 8

_____________ is a borrower's payment to the owner of an asset for its use.

Accepted Answer

The answer of _____________ is a borrower's payment to the...

Question 9

An individual is planning to set-up an education fund for her children. She plans to invest $10,000 annually at the end of each year. She expects to withdraw money from the fund at the end of 10 years and expects to earn an annual return of 8%. What will be the total value of the fund at the end of 10 years?

Accepted Answer

A)  $46,320. 
B)  $67,107. 
C)  $100,000. 
D)  $144,870. 
E)  $215,890.

Question 10

Sam has a loan that requires a single payment of $4,000 at the end of 3 years. The loan's interest rate is 6%, compounded semiannually. How much did Sam borrow?

Accepted Answer

A)  $3,358.40 
B)  $4,000.00 
C)  $3,660.40 
D)  $4,776.40 
E)  $3,350.00

Question 11

The present value of 1 formula is often useful when a borrowed asset must be repaid in full at a later date and the borrower wants to know its worth at the future date.

Accepted Answer

A) True 
 B)False

Question 12

A company is creating a fund today by depositing $65,763. The fund will grow to $90,000 after 8 years. What annual interest rate is the company earning on the fund?

Accepted Answer

The answer of A company is creating a fund today...

Question 13

The number of periods in a future value calculation can only be expressed in years.

Accepted Answer

A) True 
 B)False

Question 14

The future value of an ________________ annuity is the accumulated value of each annuity payment with interest as of the date of the final payment.

Accepted Answer

The answer of The future value of an ________________ annuity...

Question 15

How long will it take an investment of $25,000 at 6% compounded annually to accumulate to a total of $35,462.50?

Accepted Answer

A)  4 years. 
B)  5 years. 
C)  6 years. 
D)  2 years. 
E)  10 years.

Question 16

An annuity is a series of equal payments.

Accepted Answer

A) True 
 B)False

Question 17

A company is setting up a sinking fund to pay off $8,654,000 in bonds that are due in 7 years. The fund will earn 7% interest, and the company intends to put away a series of equal year-end amounts for 7 years. What is the amount of the annual deposits that the company must make?

Accepted Answer

The answer of A company is setting up a sinking...

Question 18

Interest is the payment to the owner of an asset for its use by a borrower.

Accepted Answer

A) True 
 B)False

Question 19

Which interest rate column would you use from a present value table or a future value table for 8% compounded quarterly?

Accepted Answer

A)  12%. 
B)  6%. 
C)  3%. 
D)  2%. 
E)  1%.

Question 20

Jon Shear expects an investment of $25,000 to return $6,595 annually. His investment is earning 10% per year. How many annual payments will he receive?

Accepted Answer

A)  Five payments. 
B)  Six payments. 
C)  Four payments. 
D)  Three payments. 
E)  More than six payments.

Exam 26: Time Value of Money

A company is setting aside $21,354 today, and wishes to have $30,000 at the end of three years for a down payment on a piece of property. What interest rate must the company earn?

Sandra has a savings account that has accumulated to $50,000. She started with $28,225, and earned interest at 10% compounded annually. It took her five years to accumulate the $50,000. Calculation: $28,225/$50,000 = 0.5645. This is the present value of 1 factor, 10%, 6 periods.

The number of periods in a present value calculation can only be expressed in years.

From the perspective of a depositor, a savings account is a liability with interest.

Future value can be found if the interest rate (i), the number of periods (n), and the present value (p) are known.

Big League Sports borrowed $883,212, and must make annual year-end payments of $120,000 each. If Big League's interest rate is 6%, how many years will it take Big League Sports to pay off the loan?

_____________ is a borrower's payment to the owner of an asset for its use.

Sam has a loan that requires a single payment of $4,000 at the end of 3 years. The loan's interest rate is 6%, compounded semiannually. How much did Sam borrow?

The present value of 1 formula is often useful when a borrowed asset must be repaid in full at a later date and the borrower wants to know its worth at the future date.

A company is creating a fund today by depositing $65,763. The fund will grow to $90,000 after 8 years. What annual interest rate is the company earning on the fund?

The number of periods in a future value calculation can only be expressed in years.

The future value of an ________________ annuity is the accumulated value of each annuity payment with interest as of the date of the final payment.

How long will it take an investment of $25,000 at 6% compounded annually to accumulate to a total of $35,462.50?

An annuity is a series of equal payments.

A company is setting up a sinking fund to pay off $8,654,000 in bonds that are due in 7 years. The fund will earn 7% interest, and the company intends to put away a series of equal year-end amounts for 7 years. What is the amount of the annual deposits that the company must make?

Interest is the payment to the owner of an asset for its use by a borrower.

Which interest rate column would you use from a present value table or a future value table for 8% compounded quarterly?

Jon Shear expects an investment of $25,000 to return $6,595 annually. His investment is earning 10% per year. How many annual payments will he receive?