Question 1

The future value of an annuity factor for 2 periods is equal to
A) 1 plus the interest rate.
B) 2 plus the interest rate.
C) 2 minus the interest rate.
D) 2.

Accepted Answer

B

Question 2

When the periodic payments are not equal in each period, the future value can be computed by using a future value of an annuity table.

Accepted Answer

When periodic payments vary, the future value cannot be directly computed using a future value of an annuity table, as those tables assume equal payments. Instead, each payment must be individually calculated for its future value.

Question 3

If $40,000 is put in a savings account paying interest of 4% compounded annually, what amount will be in the account at the end of 5 years?
A) $32,878
B) $48,000
C) $48,620
D) $48,666

Accepted Answer

D

Question 4

The present value of an annuity is the value now of a series of future receipts or payments, discounted assuming compound interest.

Accepted Answer

This is a correct definition of the present value of an annuity.

Question 5

The factor 1.0609 is taken from the 3% column and 2 periods row in a certain table. From what table is this factor taken?
A) Future value of 1
B) Future value of an annuity of 1
C) Present value of 1
D) Present value of an annuity of 1

Accepted Answer

The factor 1.0609 for 3% interest over 2 periods is used to calculate the future value of a single sum (1) that is invested today. This factor is found in the "Future Value of 1" table, which shows how much a single sum will grow to at a certain interest rate over a number of periods.

Question 6

With a financial calculator, one can solve for any interest rate or for any number of periods in a time value of money problem.

Accepted Answer

This is true. A financial calculator can solve for interest rate (using the I/Y key) or for number of periods (using the N key) in a time value of money problem.

Question 7

The present value of a long-term note or bond is a function of two variables.

Accepted Answer

The answer of The present value of a long-term note...

Question 8

Which of the following is not necessary to know in computing the future value of an annuity?
A) Amount of the periodic payments
B) Interest rate
C) Number of compounding periods
D) Year the payments begin

Accepted Answer

The year the payments begin is not necessary to know in computing the future value of an annuity. The amount of the periodic payments, interest rate, and number of compounding periods are all essential factors that are needed to calculate the future value of an annuity.

Question 9

The process of determining the present value is referred to as discounting the future amount.

Accepted Answer

Discounting the future amount involves determining its present value by applying a discount rate based on the time value of money.

Question 10

Interest is the difference between the amount borrowed and the principal.

Accepted Answer

Interest is calculated based on the principal and a stated interest rate, it is not the difference between the amount borrowed and the principal.

Question 11

McGoff Company deposits $20,000 in a fund at the end of each year for 5 years. The fund pays interest of 4% compounded annually. The balance in the fund at the end of 5 years is computed by multiplying
A) $20,000 by the future value of 1 factor.
B) $100,000 by 1.04.
C) $100,000 by 1.20.
D) $20,000 by the future value of an annuity factor.

Accepted Answer

Since McGoff Company is depositing $20,000 at the end of each year for 5 years, this represents an annuity. The balance in the fund at the end of 5 years can be determined by multiplying the yearly deposit ($20,000) by the future value of an annuity factor, which takes into account the interest earned on the deposits. Therefore, the correct choice is D.

Question 12

The future value of 1 factor will always be
A) equal to 1.
B) greater than 1.
C) less than 1.
D) equal to the interest rate.

Accepted Answer

The future value of 1 factor is the result of compounding 1 unit of currency at a given interest rate for a certain period of time. Since compounding involves adding interest to the principal amount, the future value will always be greater than the principal amount, which is 1. Therefore, the correct answer is B.

Question 13

If $30,000 is deposited in a savings account at the end of each year and the account pays interest of 5% compounded annually, what will be the balance of the account at the end of 10 years?
A) $48,867
B) $315,000
C) $377,337
D) $450,000

Accepted Answer

Using the formula for compound interest, we can find the balance of the account after 1 year:

$30,000(1.05)^1 = $31,500

After the second year:

$30,000(1.05)^2 + $31,500(1.05)^1 = $65,775

After the third year:

$30,000(1.05)^3 + $31,500(1.05)^2 + $65,775(1.05)^1 = $104,063.75

We can continue this pattern and find that at the end of 10 years, the account will have a balance of:

$30,000(1.05)^{10} + $31,500(1.05)^9 + ... + $331,917.51(1.05)^1 = $377,337.05

Therefore, the best choice is C.

Question 14

All of the following are necessary to compute the future value of a single amount except the
A) interest rate.
B) number of periods.
C) principal.
D) maturity value.

Accepted Answer

The future value of a single amount can be calculated using the principal, interest rate, and number of periods. The maturity value is not necessary as it is the future value that we are trying to calculate.

Question 15

Which table has a factor of 1.00000 for 1 period at every interest rate?
A) Future value of 1
B) Future value of an annuity of 1
C) Present value of 1
D) Present value of an annuity of 1

Accepted Answer

The answer of Which table has a factor of 1.00000...

Question 16

Compound interest is the return on principal
A) only.
B) for one or more periods.
C) plus interest for two or more periods.
D) for one period.

Accepted Answer

The answer of Compound interest is the return on principal
A)...

Question 17

In computing the present value of an annuity, it is not necessary to know the number of discount periods.

Accepted Answer

The number of discount periods is essential in computing the present value of an annuity because it determines how many times the periodic payment is discounted back to its present value.

Question 18

The future value of a single amount is the value at a future date of a given amount invested now, assuming compound interest.

Accepted Answer

This statement is true. The future value is calculated using compound interest, which means that the interest earned is added back to the principal, resulting in a larger amount at the end of the investment period.

Question 19

Compound interest is computed on the principal and any interest earned that has not been paid or received.

Accepted Answer

Compound interest takes into account the principal amount as well as any previous interest earned that has not been paid or received, and calculates interest accordingly.

Question 20

A higher discount rate produces a higher present value.

Accepted Answer

A higher discount rate decreases the present value, as it reduces the value of future cash flows by a larger margin.

Quiz 14: Specimen Financial Statements: Apple Inc

The future value of an annuity factor for 2 periods is equal to

When the periodic payments are not equal in each period, the future value can be computed by using a future value of an annuity table.

If $40,000 is put in a savings account paying interest of 4% compounded annually, what amount will be in the account at the end of 5 years?

The present value of an annuity is the value now of a series of future receipts or payments, discounted assuming compound interest.

The factor 1.0609 is taken from the 3% column and 2 periods row in a certain table. From what table is this factor taken?

With a financial calculator, one can solve for any interest rate or for any number of periods in a time value of money problem.

The present value of a long-term note or bond is a function of two variables.

Which of the following is not necessary to know in computing the future value of an annuity?

The process of determining the present value is referred to as discounting the future amount.

Interest is the difference between the amount borrowed and the principal.

McGoff Company deposits $20,000 in a fund at the end of each year for 5 years. The fund pays interest of 4% compounded annually. The balance in the fund at the end of 5 years is computed by multiplying

The future value of 1 factor will always be

If $30,000 is deposited in a savings account at the end of each year and the account pays interest of 5% compounded annually, what will be the balance of the account at the end of 10 years?

All of the following are necessary to compute the future value of a single amount except the

Which table has a factor of 1.00000 for 1 period at every interest rate?

Compound interest is the return on principal

In computing the present value of an annuity, it is not necessary to know the number of discount periods.

The future value of a single amount is the value at a future date of a given amount invested now, assuming compound interest.

Compound interest is computed on the principal and any interest earned that has not been paid or received.

A higher discount rate produces a higher present value.