Deck 26: Time Value of Money B

Question 1

The future value of $100 compounded semiannually for 3 years at 12% equals $140.49.

Answer 1

False
Explanation: Future Value = Present Value * Interest Factor
Future Value = $100 * 1.4185 = $141.85

Question 2

An annuity is a series of equal payments.

Answer 2

True

Question 3

The future value of an ordinary annuity is the accumulated value of each annuity payment
with interest one period after the date of the final payment.

Answer 3

False

Question 4

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

Question 5

At an annual interest rate of 8% compounded annually,$5,300 will accumulate to a total
of $7,210.65 in 5 years.

Question 6

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.

Question 7

The present value of $2,000 to be received nine years from today at 8% interest
compounded annually is $1,000.

Question 8

The present value factor for determining the present value of $6,300 to be received three
years from today at 10% interest compounded semiannually is 0.7462.

Question 9

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

Question 10

The present value of an annuity table can be used to determine the series of equal payments that are required by a loan agreement.

Question 11

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

Question 12

The present value of $5,000 per year for three years at 12% compounded annually is
$12,009.

Question 13

A company can use present and future value computations to estimate the interest
component of holding assets over time.

Question 14

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

Question 15

An ordinary annuity refers to a series of equal payments made or received at the end of
each period.

Question 16

In a present value or future value table,the length of one time period may be interpreted as one year,one month,or any other length of time.

Question 17

With deposits of $5,000 at the end of each year,you will have accumulated $38,578 at the end of the sixth year if the annual rate of interest is 10%.

Question 18

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 the worth of the asset at the future date.

Question 19

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

Question 20

An interest rate is also called a discount rate.

Question 21

Interest is:

A)Time.
B)A borrower's payment to the owner of an asset for its use.
C)The same as a savings account.
D)Always a liability.
E)Always an asset.

Question 22

What is interest?

Question 23

Explain the concept of the future value of an annuity.

Question 24

Explain the concept of the present value of a single amount.

Question 25

What amount can you borrow if you make six quarterly payments of $4,000 at a 12 % annual rate of interest?

A)$24,838.00
B)$21,668.80
C)$31,049.00
D)$40,000.00
E)$44,800.00

Question 26

Keisha has $3,500 now and plans on investing it in a fund that will pay her 12% interest compounded quarterly.How much will Keisha have accumulated after 2 years?

A)$4,433.80
B)$4,340.00
C)$4,390.40
D)$3,920.00
E)$3,500.00

Question 27

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

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

Question 28

Explain the concept of the future value of a single amount.

Question 29

A company needs to have $200,000 in 4 years,and will create a fund to insure that the $200,000
will be available.If they can earn a 7% return,how much must the company invest in the fund today
to equal the $200,000 at the end of 4 years?

Question 30

A company is considering an investment that will return $20,000 semiannually at the end of each semiannual period for 4 years.If the company requires an annual return of 10%,what is the maximum amount it is willing to pay for this investment?

A)Not more than $ 63,398
B)Not more than $126,796
C)Not more than $ 80,000
D)Not more than $129,264
E)Not more than $160,000

Question 31

Chad is setting up a retirement fund,and he plans on depositing $5,000 per year in an investment that will pay 7% annual interest.How long will it take him to reach his retirement goal of $69,080?

A)13.816 years
B)0.072 years
C)10 years
D)20 years
E)5 years

Question 32

A company expects to invest $5,000 today at 12% annual interest and plans to receive $15,529 at the end of the investment period.How many years will elapse before the company accumulates the
$15,529?

A)0.322 years
B)3.1058 years
C)5 years
D)8 years
E)10 years

Question 33

A company is considering investing in a project that is expected to return $350,000 four years from now.How much is the company willing to pay for this investment if the company requires a 12% return?

A)$ 55,606
B)$137,681
C)$222,425
D)$265,764
E)$350,000

Question 34

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

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

Question 35

Explain the concept of the present value of an annuity.

Question 36

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?

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

Question 37

Crowe Company has acquired a building with a loan that requires payments of $20,000 every six months for 5 years.The annual interest rate on the loan is 12%.What is the present value of the
Building?

A)$ 72,096
B)$113,004
C)$147,202
D)$ 86,590
E)$200,000

Question 38

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?

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

Question 39

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?

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

Question 40

What interest rate is required to accumulate $6,802.50 in four years from an investment of $5,000?

A)5%
B)8%
C)10%
D)12%
E)15%

Question 41

An _____________ is a series of equal payments occurring at equal intervals.

Question 42

A company borrows money from the bank by promising to make 6 annual year-end payments of
$25,000 each.How much is the company able to borrow if the interest rate is 9%?

Question 43

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?

Question 44

You are little late planning your retirement,but are looking forward to retiring in 10 years.You
expect to save $6,000 a year at an annual rate of 8%.How much will you have accumulated when you
retire?

Question 45

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?

Question 46

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?

Question 47

Annette has a loan that requires a $25,000 payment at the end of three years.The interest rate on
the loan is 5%,compounded annually.How much did Annette borrow today?

Question 48

When you reach retirement age,you will have one fund of $100,000 from which you are going to make annual withdrawals of $14,702.The fund will earn 6% per year.For how many years will you be able to draw an even amount of $14,702?

Question 49

The interest rate is also called the __________________ rate.

Question 50

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

Question 51

A company is beginning a savings plan.It will be saving $15,000 per year for the next 10 years.
How much will the company have accumulated after the tenth year-end deposit,assuming the fund
earns 10% interest?

Question 52

Troy has $105,000 now.He has a loan of $175,000 that he must pay at the end of 5 years.He can invest his $105,000 at 10% interest compounded semiannually.Will Troy have enough to pay his loan at the end of the 5 years?

Question 53

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?

Question 54

To calculate present value of an amount,two factors are required:
__________________ and
___________________.

Question 55

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

Question 56

Thompson Company has acquired a machine from a dealer that requires a payment of $45,000 at
the end of five years.This transaction includes interest at 8%,compounded semiannually.What is the
value of the machine today?

Question 57

Daley Co.lends $524,210 to Davis Corporation.The terms of the loan require that Davis make six
semiannual period-end payments of $100,000 each.What semiannual interest rate is Davis paying on
the loan?

Question 58

A company has $50,000 today to invest in a fund that will earn 7%.How much will the fund
contain at the end of 8 years?

Question 59

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?

Question 60

A company borrows money from the bank by promising to make 8 semiannual payments of $9,000 each.How much is the company able to borrow if the interest rate is 10% compounded semiannually?