# Quiz 7: Accounting and the Time Value of Money

Business

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Q 5Q 5

The effective interest rate is calculated as the total interest earned during the year divided by the beginning balance of the investment as the first of the year.

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True False

Q 6Q 6

The value of a dollar today is greater than the value of a dollar in the future because a dollar today can be invested to earn interest.

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True False

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Q 8Q 8

Which of the following items does not use an accounting measure based on present value?
A) patents
B) leases
C) pensions
D) bonds

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Multiple Choice

Q 9Q 9

Determining the future value of one or more present day cash flows is known as ________.
A) disinvesting
B) compounding
C) discounting
D) annuitizing

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Multiple Choice

Q 10Q 10

Determining the present value of one or more future amounts is known as ________.
A) inverting
B) compounding
C) discounting
D) annuitizing

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Multiple Choice

Q 11Q 11

The method of converting a future dollar amount into its present dollar value by removing the time value of money is called ________.
A) devaluing
B) amortizing
C) compounding
D) discounting

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Multiple Choice

Q 12Q 12

Interest calculated on the original principal regardless of the amount of interest that has been paid or accrued in the past is ________.
A) principal interest
B) original interest
C) simple interest
D) compound interest

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Q 13Q 13

What is the term that describes the value today of a cash flow or series of cash flows to be received or paid in the future?
A) present value
B) compound value
C) discount value
D) temporal value

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Multiple Choice

Q 14Q 14

When payments take place at the beginning of each period, the series of cash flows is called a(n) ________.
A) ordinary annuity
B) annuity due
C) posterior annuity
D) anterior annuity

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Multiple Choice

Q 15Q 15

Simple interest on a $620,000, 6%, 18-month note is ________.
A) $74,400
B) $37,200
C) $27,900
D) $55,800

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Multiple Choice

Q 16Q 16

Bob Marby purchased a TV from Tryton Sales and signed a 2-year, 8% promissory note for $1,000. What is the amount required to pay off the note if it accrues simple interest over the term of the loan?
A) $840
B) $1,080
C) $1,160
D) $920

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Multiple Choice

Q 17Q 17

What is the effective interest rate for an investment fund that pays 4% interest compounded monthly? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer two decimal places, X.XX%.)
A) 4.33%
B) 4.00%
C) 4.07%
D) 4.04%

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Multiple Choice

Q 18Q 18

What is the effective interest rate for an investment fund that pays 6% interest compounded semiannually? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer two decimal places, X.XX%.)
A) 6.50%
B) 6.09%
C) 6.00%
D) 6.17%

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Q 24Q 24

Future value factors are determined by two characteristics: the interest rate per compounding period and the number of compounding periods.

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Q 25Q 25

Present value factors are determined by two characteristics: the interest rate and the length of the compounding periods.

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True False

Q 26Q 26

For any specific number of periods, the present value factor for a single sum decreases as the discount rate increases.

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True False

Q 27Q 27

The relationship between the future value of a single sum and the corresponding present value of a single sum is determined by two variables. What are those two variables?
A) interest rate; length of compounding periods
B) interest rate per compounding period; number of compounding periods
C) conversion rate; length of compounding periods
D) conversion rate; number of compounding periods

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Multiple Choice

Q 28Q 28

The relationship between the future value of a single sum and the corresponding present value of a single sum is determined by the interest rate per compounding period and ________.
A) number of compounding periods
B) length of compounding periods
C) principal balance
D) time of year

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Multiple Choice

Q 29Q 29

Which of the following statements is true?
A) The process of accumulating interest on interest is referred to as discounting.
B) The higher the discount rate, the higher the present value.
C) If interest is 11% compounded annually, $1,100 due one year from today is equivalent to $1,000 today.
D) If interest is 4% compounded annually, $10,400 due one year from today is equivalent to $10,000 today.

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Multiple Choice

Q 30Q 30

The PV (present value) function for a single sum in a Microsoft Excel spreadsheet requires inputting all of the following variables except ________.
A) length of compounding period
B) number of compounding periods
C) interest rate per compounding period
D) future value of single sum

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Multiple Choice

Q 31Q 31

You decide to deposit $2,000 at a local bank for two years at a 8% rate of interest compounded annually. What is the future value of your investment? (Do not round any intermediary calculations, and round your final answer to the nearest dollar.) Use the formula approach.
A) $2,000
B) $2,160
C) $2,343
D) $2,333

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Multiple Choice

Q 32Q 32

You decide to deposit $1,000 at a local bank for two years at a 5% rate of interest compounded annually. What is the future value of your investment? (Use the future value of $1 factor table provided). Excerpt of Future Value of $1 Table
A) $1,000
B) $1,050
C) $1,160
D) $1,100

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Multiple Choice

Q 33Q 33

You decide to deposit $3,000 at a local bank for three years at a 5% rate of interest compounded semiannually. The future value of your investment is approximately equal to ________. (Use the formula approach and round your final answer to the nearest dollar.)
A) $3,473
B) $3,482
C) $3,479
D) $3,450

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Multiple Choice

Q 34Q 34

You decide to deposit $3,000 at a local bank for three years at a 5% rate of interest compounded quarterly. The future value of your investment is approximately equal to ________. (Use the formula method and round to the nearest dollar.
A) $3,450
B) $3,482
C) $3,479
D) $3,484

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Multiple Choice

Q 35Q 35

Dover Company deposits $30,000 with Second National Bank in an account earning interest at 5% per annum, compounded semi-annually. How much will Dover have in the account after five years if interest is reinvested? Use the formula method. (Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $37,500
B) $33,750
C) $38,461
D) $38,403

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Multiple Choice

Q 36Q 36

$70,000 is put in an investment account today. The investment account compounds interest at a rate of 2% per month. What amount will be available five years from today? Use the formula method. (Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $104,016
B) $154,000
C) $85,330
D) $229,672

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Multiple Choice

Q 37Q 37

You have discovered an investment opportunity that earns a 10% rate of interest compounded annually. What amount should you deposit today to have $10,000 in two years? Use the formula method. (Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $8,227
B) $8,264
C) $8,333
D) $9,000

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Multiple Choice

Q 38Q 38

You have discovered an investment opportunity that earns a 6% rate of interest compounded semiannually. What amount should you deposit today to have $4,000 in three years? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $3,358
B) $3,346
C) $3,350
D) $3,280

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Multiple Choice

Q 39Q 39

You have discovered an investment opportunity that earns a(n) 3% rate of interest compounded quarterly. Which of the following amounts is approximately equal to the amount you should deposit today to have $8,000 in five years? Use the formula method. (Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $6,800
B) $6,901
C) $6,893
D) $6,890

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Multiple Choice

Q 40Q 40

A zero-interest bond pays $100,000 in seven years. What amount would you be willing to pay to acquire the bond today if you want to earn a return of approximately 10%? Use the present value of $1 table shown below. (Do not round any intermediary calculations, and round your final answer to the nearest dollar.) Excerpt of Present Value of $1 Table
A) $90,909
B) $68,301
C) $51,316
D) $30,000

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Multiple Choice

Q 41Q 41

A zero-interest bond pays $200,000 in 10 years. What amount would you be willing to pay to acquire the bond today if you want to earn a return of approximately 4%? Use the present value table of $1 provided. (Do not round any intermediary calculations, and round your final answer to the nearest dollar.) Excerpt of Present Value of $1 Table
A) $120,000
B) $164,386
C) $134,594
D) $135,112

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Multiple Choice

Q 42Q 42

Como Company borrowed $5,200 from its bank. Como will repay $7,300 in five years. What is the approximate interest rate that Como will incur on this loan, assuming annual compounding? Use the future value of $1 table. Excerpt of Future Value of $1 Table
A) 7%
B) 8%
C) 9%
D) 29%

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Multiple Choice

Q 43Q 43

Punjab Company borrowed $114,000 from its bank. Punjab will repay $140,000 in 7 years. What is the approximate interest rate that Punjab will incur on this loan, assuming annual compounding? Use a financial calculator or a spreadsheet to derive your answer. (Do not round any intermediary calculations, and round your final answer two decimal places, X.XX%.)
A) 2.16%
B) 2.98%
C) 81.43%
D) 3.79%

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Multiple Choice

Q 44Q 44

Fanagi Corp. borrowed $57,000 from its bank at a 6% annual interest rate and will repay $182,807. Assume annual compounding. In approximately how many years will Fanagi repay the loan? Use the future value of $1 factor table shown below. Excerpt of Future Value of $1 Table
A) 35 years
B) 25 years
C) 30 years
D) 20 years

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Multiple Choice

Q 45Q 45

Wasup Corp. is thinking of borrowing $110,000 from its bank at 8% annual interest rate. The amount that will be repaid is $138,568. Assume annual compounding. In approximately how many years will Wasup Corp. need to repay the loan? Use the future value of $1 factor table shown below. Excerpt of Future Value of $1 Table
A) 3 years
B) 4 years
C) 5 years
D) 6 years

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Multiple Choice

Q 46Q 46

The parents of a recent high school graduate decide to invest the $14,000 she received for her high school graduation in a fund earning 5% annual interest. At the end of the four-year period, she expects to withdraw the money to pay for accumulated college tuition loans. What is the approximate amount that would be available for withdrawal after four years if interest is compounded monthly? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations and round your final answer to the nearest dollar.)
A) $17,868
B) $17,017
C) $2,800
D) $17,093

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Multiple Choice

Q 47Q 47

A single amount is invested and increases over time as interest is compounded. If the number of periods is known, the interest rate can be approximately determined by ________.
A) dividing the present value by the future value and looking for the quotient in the future value of $1 table
B) multiplying the present value by the future value and looking for the product in the present value of $1 table
C) dividing the future value by the present value and looking for the quotient in the future value of $1 table
D) dividing the future value by the present value and looking for the quotient in the present value of $1 table

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Q 49Q 49

You are provided with two time value of money tables. One is a present value of $1 table and one is a future value of $1 table. How can you tell which table is which type?

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Q 50Q 50

Maria Gonzales is considering two investment options for a $2,500 gift she received for graduation. Both investments have the same annual interest rates but one offers quarterly compounding while the other compounds on a monthly basis. Which investment should she choose? Why?

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Q 51Q 51

Henry Rector deposited $5,000 in a certificate of deposit that provides interest of 10% compounded quarterly if the amount is maintained for 5 years. How much will Henry have at the end of 5 years? Use the formula approach.

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Q 52Q 52

Paula Poser will receive $80,000 on December 31, 2024, from a trust fund established by her mother. Assuming the appropriate interest rate for discounting is 12% (compounded semiannually), what is the present value of this amount as of January 1, 2020 (5 years earlier)? Use the formula approach.

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Q 53Q 53

An ordinary annuity is a series of equal periodic payments made at the beginning of each period.

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Q 55Q 55

An ordinary annuity is a series of equal periodic payments and an annuity due is a series of unequal periodic payments.

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Q 57Q 57

A specific future value of an ordinary annuity factor for a given number of periods and a specific discount rate is equal to the cumulative sum of the future value of single sum factors over the given number of periods for that discount rate.

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True False

Q 58Q 58

The future value of an ordinary annuity for any given interest rate and number of periods is always less than the future value of an annuity due for the same interest rate and number of periods.

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True False

Q 59Q 59

The present value of an annuity due for any given interest rate and number of periods is always less than the future value of an annuity due for the same interest rate and number of periods.

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True False

Q 60Q 60

A series of equal periodic payments in which the first payment is made one compounding period after the date of the contract is ________.
A) an ordinary annuity
B) an annuity due
C) a deferred annuity
D) a compound annuity

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Multiple Choice

Q 61Q 61

What is the primary difference between an ordinary annuity and an annuity due?
A) the interest rate
B) annuity due only relates to future values
C) ordinary annuity only relates to future values
D) the timing of the periodic payment

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Multiple Choice

Q 62Q 62

All of the following are conditions for an ordinary annuity except ________.
A) the future value is equal to the present value
B) the time periods between the cash flows are the same length
C) periodic cash flows must be equal in amount
D) interest is compounded at the end of each time period

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Multiple Choice

Q 63Q 63

All of the following are conditions for an annuity due except ________.
A) the interest rate is constant for each time period
B) payments occur at the end of each time period
C) the time periods between the cash flows are the same length
D) periodic cash flows must be equal in amount

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Multiple Choice

Q 64Q 64

The future amount of an annuity due is determined ________.
A) one period after the last cash payment in the series
B) one period before the last cash payment in the series
C) at the same time as the first cash payment in the series
D) at the same time as the last cash payment in the series

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Multiple Choice

Q 65Q 65

On January 1, 2020, Denero Company issued 10-year bonds with a face value of $6,000,000 due on December 31, 2029. The company will accumulate a fund to retire these bonds at maturity. It will make ten annual deposits to the fund beginning on December 31, 2020. How much must Denero deposit each year to achieve this investment goal, assuming that it will earn 5% interest compounded annually? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $777,027
B) $454,612
C) $477,027
D) $600,000

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Multiple Choice

Q 66Q 66

Cline Corporation deposits $75,000 every quarter in a savings account (beginning at the end of the current quarter) for the next five years so that it can purchase a new piece of machinery at the end of five years. The interest rate is 12%. How much money will Cline Corporation have at the end of five years? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $5,403,933
B) $2,015,278
C) $2,075,736
D) $1,316,155

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Multiple Choice

Q 67Q 67

Harlan Corporation deposits $225,000 every June 30th and December 31st in a savings account (beginning in the current year) for the next three years so that it can purchase a new piece of machinery at the end of three years. The interest rate is 4%. How much money will Harlan Corporation have at the end of three years? Use the future value of an ordinary annuity factor table shown below to derive your answer.
A) $1,419,327
B) $688,590
C) $1,492,421
D) $702,360

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Multiple Choice

Q 68Q 68

Leberland Corporation deposits $125,000 every year in a savings account (beginning at the end of the current year) for the next six years so that it can purchase a new piece of machinery at the end of six years. The interest rate is 6%. How much money will Leberland Corporation have at the end of six years? Use the future value of an ordinary annuity factor table shown below to derive your answer.
Excerpt from future value of an ordinary annuity factor table
A) $871,915
B) $397,950
C) $435,958
D) $198,975

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Multiple Choice

Q 69Q 69

BillyBob Corporation deposits $80,000 at the beginning of every quarter in a savings account for the next eight years so that it can purchase a new piece of machinery at the end of eight years. The interest rate is 4%. How much money will BillyBob Corporation have at the end of eight years? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $2,999,525
B) $669,482
C) $766,624
D) $3,029,521

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Multiple Choice

Q 70Q 70

Maddie's Place Corporation deposits $100,000 at the beginning of every quarter in a savings account for the next six years so that it can purchase a new piece of machinery at the end of six years. The interest rate is 8%. How much money will Maddie's Place Corporation have at the end of six years? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $3,042,186
B) $3,103,030
C) $792,280
D) $643,428

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Multiple Choice

Q 71Q 71

Aucutt Incorporated deposits $200,000 every January 1st and July 1st in a savings account for the next five years so that it can purchase a new piece of machinery at the end of five years. The interest rate is 12%. How much money will Aucutt Incorporated have at the end of five years? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $2,794,329
B) $2,636,159
C) $1,423,038
D) $1,270,569

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Multiple Choice

Q 72Q 72

Bobby's parents loaned him $60,000 to fund his college education. His parents are not charging interest. They desire to be paid one lump sum of $60,000 when Bobby can accumulate that amount. Bobby established a savings plan that earns 11% compounded annually. His new job promises to pay an annual holiday bonus that will enable him to make equal annual, year-end deposits of $6,800 starting next year. Approximately how many years will it take Bobby to accumulate the $60,000? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest year.)
A) 9 years
B) 8 years
C) 6 years
D) 7 years

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Multiple Choice

Q 73Q 73

Anne wants to accumulate $20,000 by December 31, 2019. To accumulate that sum, she will make twelve equal quarterly deposits of $1,576.98 at the end of March, June, September, and December for the next three years, beginning on March 31, 2016, into a fund that earns interest compounded quarterly. What annual rate of interest must the fund provide to yield the desired sum? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest year.)
A) 1%
B) 2%
C) 4%
D) 5%

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Multiple Choice

Q 74Q 74

List the five primary variables of an annuity problem and explain the difference between an ordinary annuity and an annuity due.

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Q 75Q 75

You are provided with two-time value of money tables. One table provides factors for the future value of an ordinary annuity and the other provides factors for the future value of an annuity due. How can you tell which table is which type?

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Essay

Q 76Q 76

Each year for the next 10 years, Carmen Lector will deposit $4,000 into an investment fund that pays 10% compounded annually. Use the formula approach.
a. How much will Carmen have at the end of 10 years if the first of 10 deposits are made at the end of each year?
b. How much will Carmen have at the end of 10 years if the first of 10 deposits are made at the beginning of each year?

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Essay

Q 77Q 77

Each quarter for the next 10 years, Carmen Lector will deposit $1,000 into an investment fund that pays 8% compounded quarterly. Use the formula approach.
a. How much will Carmen have at the end of 10 years if the first of 40 quarterly deposits are made at the end of each quarter?
b. How much will Carmen have at the end of 10 years if the first of 40 quarterly deposits are made at the beginning of each quarter?

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Essay

Q 78Q 78

A specific present value of an ordinary annuity factor for a given number of periods and a specific discount rate is equal to the cumulative sum of the present value of single sum factors over the given number of periods for that discount rate.

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True False

Q 79Q 79

A specific present value of an ordinary annuity factor for a given number of periods and a specific discount rate is equal to the cumulative sum of the present value of a single sum factors over all the discount rates for that specific number of periods.

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True False

Q 80Q 80

For any discount rate and number of periods, the present value of an annuity due factor is always greater than the corresponding present value of an ordinary annuity factor.

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True False

Q 81Q 81

Which of the following must be known to compute the interest rate incurred from financing an asset purchased with an annuity?
A) fair value of the asset purchased, number and dollar amount of the annuity payments
B) present value of the annuity, dollar amount and number of the annuity payments
C) fair value of the asset and timing of the annuity payments
D) future value of the annuity and number of the annuity payments

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Multiple Choice

Q 82Q 82

Which of the following transactions would best use the present value of an annuity due table?
A) Bengatti, Inc. leases a truck for 4 years with annual lease payments of $20,000 to be made at the beginning of each year.
B) Turkel Co. leases a warehouse for 9 years with annual lease payments of $150,000 to be made at the end of each year.
C) Ponzi, Inc. borrows $60,000 and has agreed to pay back the principal plus interest in three years.
D) Skool, Inc. wants to deposit a lump sum to accumulate $80,000 for the construction of a new parking lot in 4 years.

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Multiple Choice

Q 83Q 83

The factor for the present value of an ordinary annuity for 11% and eight periods is less than ________.
A) the factor for the present value of an ordinary annuity for 8% and eight periods
B) the factor for the present value of an annuity due for 12% and seven periods
C) the factor for the present value of an ordinary annuity for 10% and seven periods
D) the factor for the present value of an ordinary annuity for 11% and ten periods

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Multiple Choice

Q 84Q 84

In the present value of an annuity due table, the factors ________.
A) increase as the interest rates increase, given a set number of periods
B) decrease as the periods increase, given a set interest rate
C) increase as the periods decrease, given a set interest rate
D) decrease as the interest rates increase, given a set number of periods

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Multiple Choice

Q 85Q 85

Assume that you have the opportunity to receive $7,000 at the end of each of the next seven years. Given an interest rate of 7%, how much would you be willing to pay for this investment today? Use the present value of an ordinary annuity interest factor table shown below. Excerpt from present value of an ordinary annuity interest factor table
A) $33,366
B) $36,445
C) $37,725
D) $41,799

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Multiple Choice

Q 86Q 86

Assume that you have the opportunity to receive $9,000 at the end of each of the next seven years. Given an interest rate of 7%, how much would you be willing to pay for this investment today? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $42,899
B) $48,504
C) $46,857
D) $53,742

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Multiple Choice

Q 87Q 87

Jenks Company financed the purchase of a machine by paying $37,000 a year for the next five years, with the first payment due one year from today. The purchase cost of the machine is considered to be the present value of those payments. What was the purchase cost of the machine to Jenks assuming a discount rate of 7%? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $185,000
B) $151,707
C) $162,327
D) $26,380

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Multiple Choice

Q 88Q 88

Terry Brown purchased a used car and agreed to pay $1,000 per month for two-and-a-half years with the first payment due at the end of the first month. What was the purchase price of the car assuming an annual rate of 12%? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $30,000
B) $26,066
C) $25,808
D) $33,600

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Multiple Choice

Q 89Q 89

Bangin Inc. financed the purchase of a machine by making ten annual payments of $19,000 with the first payment due today. The purchase cost of the machine is considered to be the present value of those payments. What was the purchase cost of the machine to Bangin assuming a discount rate of 9%? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $80,258
B) $190,000
C) $121,935
D) $132,910

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Multiple Choice

Q 90Q 90

Potash Corporation financed the purchase of a building by making semiannual payments of $27,000 for the next twenty years, with the first payment due six months from today. The purchase cost of the building is considered to be the present value of those payments. What was the purchase cost of the building to Potash assuming an annual interest rate of 10%? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $486,460
B) $463,295
C) $540,000
D) $153,409

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Multiple Choice

Q 91Q 91

You have just won the Multi-State Lottery. You have the option of receiving a check for $40,000,000 every year at the end of the next 23 years. The lottery commission also allows you the option of receiving a one-time payment of $414,842,358 when you turn in the winning ticket. What is the approximate interest rate that the lottery commission is using to determine the one-time payment? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest percent, X%.)
A) 8%
B) 5%
C) 9%
D) 3%

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Multiple Choice

Q 92Q 92

On January 1, Yumati Electric borrows $200,000 at an interest rate of 6% today and will repay this amount by making 18 semiannual payments beginning May 31. What is the approximate amount of each payments that Yumati will need to make? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $12,000
B) $11,111
C) $14,542
D) $18,471

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Multiple Choice

Q 93Q 93

You are provided with two-time value of money tables. One table provides factors for the present value of an ordinary annuity and the other provides factors for the present value of an annuity due. How can you tell which table is which type?

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Essay

Q 94Q 94

Each year for the next 10 years, Carmen Lector will deposit $4,000 into an investment fund that pays 8% compounded annually. Use the following tables:
Excerpt from the Present Value of an Ordinary Annuity of $1 Table
Excerpt from the Present Value of an Annuity Due of $1 Table
a. What is the present value of those investment payments if the first of 10 deposits are made at the end of each year?
b. What is the present value of those investment payments if the first of 10 deposits are made at the beginning of each year?

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Essay

Q 95Q 95

Each quarter for the next 10 years, Carmen Lector will deposit $1,000 into an investment fund that pays 8% compounded quarterly. Use the following tables:
Excerpt from the Present Value of an Ordinary Annuity of $1 Table
Excerpt from the Present Value of an Annuity Due of $1 Table
a. What is the present value of those investment payments if the first of 40 deposits are made at the end of each quarter?
b. What is the present value of those investment payments if the first of 40 deposits are made at the beginning of each quarter?

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Q 96Q 96

A deferred annuity is an annuity for which payments are delayed until the end of each period.

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True False

Q 97Q 97

A deferred annuity is an annuity for which the first payment is delayed until a future period.

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True False

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True False

Q 99Q 99

The present value of a four-year ordinary annuity for which the first payment is deferred for five years (not received until year six) is equal to the present value of a nine-year ordinary annuity minus the present value of a five-year ordinary annuity.

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True False

Q 100Q 100

When two or more periods precede the payment of the first cash flow in a series of cash flows, the annuity is ________.
A) an ordinary annuity
B) a future annuity
C) an annuity due
D) a deferred annuity

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Multiple Choice

Q 101Q 101

A series of equal periodic payments that starts more than one period after the agreement begins is called ________.
A) an ordinary annuity
B) an annuity due
C) a deferred annuity
D) a delayed annuity

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Multiple Choice

Q 102Q 102

Which of the following is false?
A) To calculate the present value of a deferred annuity, determine the present value of an ordinary annuity for the entire period and subtract the present value of the payments which were not received during the deferral period.
B) The future value of a deferred annuity is equal to the future value of an annuity not deferred.
C) If the first payment is received at the end of the fifth period, it means the ordinary annuity is deferred for five periods.
D) The present value of a deferred annuity is less than the present value of an annuity not deferred.

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Multiple Choice

Q 103Q 103

Baxter desires to purchase an annuity on January 1, 2019, that yields him five annual cash flows of $19,000 each, with the first cash flow to be received on January 1, 2022. The interest rate is 10% compounded annually. The cost (present value) of the annuity on January 1, 2019, is ________. (Use spreadsheet software or a financial calculator to calculate your answer. Round intermediary calculations two decimal places and round your final answer to the nearest dollar.)
A) $49,194
B) $95,000
C) $59,525
D) $79,227

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Q 104Q 104

Annie Laerz wants to invest $20,000 on January 1, 2014, so that she may withdraw 10 annual payments of equal amounts beginning January 1, 2029. If the fund earns 6% annual interest over its life, what will be the amount of each of the withdrawals? (Use spreadsheet software or a financial calculator to calculate your answer. Round intermediary calculations two decimal places and round your final answer to the nearest dollar.)
A) $20,000
B) $6,512
C) $6,144
D) $8,584

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Multiple Choice

Q 105Q 105

Suppose you borrow money from your parents for college tuition on January 1, 2015. Your parents require four annual payments of $40,000 each, with the first payment due on January 1, 2019. They are charging you 8% annual interest. What is the cost of the college tuition? (Use spreadsheet software or a financial calculator to calculate your answer. Round intermediary calculations two decimal places and round your final answer to the nearest dollar.)
A) $160,000
B) $113,336
C) $143,084
D) $105,171

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Multiple Choice

Q 106Q 106

An example of a deferred annuity is payments for ________.
A) pension benefits
B) loan obligations
C) preferred dividends
D) insurance premiums

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Multiple Choice

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Q 108Q 108

Explain how to determine the present value for any deferred, ordinary annuity by using only the table for factors of the present value of an ordinary annuity.

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Q 109Q 109

The expected cash flow approach values an asset or liability using a range of estimated future cash flows times the probability of their occurrence discounted at the market rate of interest.

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True False

Q 110Q 110

The selling price of a bond is equal to the present value of the interest payments plus the present value of the maturity value.

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True False

Q 111Q 111

Which of the following tables would show the smallest value for an interest rate of 8% for ten periods?
A) future value of $1
B) present value of $1
C) future value of an ordinary annuity
D) present value of an ordinary annuity

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Multiple Choice

Q 112Q 112

In order to measure the purchase price of an investment in bonds, which of the following time value of money concepts is used?
A) the present value of an ordinary annuity
B) the future value of $1
C) the future value of an ordinary annuity
D) all of these

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Multiple Choice

Q 113Q 113

Balance sheet values are calculated using compound interest (present value) calculations for all of the following except ________.
A) bonds payable
B) long-term notes receivable
C) long-term lease liabilities
D) deferred income taxes

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Multiple Choice

Q 114Q 114

What is the market price of a $400,000, ten-year, 5% bond issue sold to yield an effective rate of 3% if interest is paid semiannually? (Use spreadsheet software or a financial calculator to calculate your answer. Do not round any intermediary calculations, and round your final answer to the nearest dollar.)
A) $468,242
B) $468,675
C) $322,783
D) $471,250

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Multiple Choice

Q 115Q 115

The expected cash flow approach encompasses all of the following features in determining a present value of an asset or liability except ________.
A) the market rate of interest
B) a range of estimated future cash flows
C) the fair value of the asset or liability
D) the probabilities of various cash-flow outcomes

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Multiple Choice

Q 116Q 116

Dana Zorowski has recently started her accounting career and her 25th birthday is coming soon. She has been told that now is the ideal time to begin to prepare for retirement. She has determined that she would like to retire with a pension that will pay $50,000 per year in retirement benefits after she retires with the expectation that the retirement fund should last for 20 years. To meet her pension retirement benefit goals, how much should she deposit annually for the next 40 years in a retirement investment fund that earns 8%? Assume all retirement deposits and benefit payments occur at the end of each year. Use the following tables:
Excerpt from Present Value of Ordinary Annuity of $1 Table
Excerpt from Future Value of Ordinary Annuity of $1 Table

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Q 117Q 117

Cocopedia Inc. is planning to issue bonds that will pay 6% semiannual interest and mature in 10 years.
a. How much will investors be willing to pay for a $1,000 bond if the prevailing market yield rate is 4%? Use the Excel function.
b. How much will investors be willing to pay for a $1,000 bond if the prevailing market interest rate is 8%? Use the Excel function.

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