Intermediate Accounting Study Set 7

Simple interest is computed on just the accumulated interest left on deposit.

Compound interest is computed on both the principal and on the accumulated interest.

Compound interest includes interest earned on interest.

The effective interest rate is the same as the stated interest rate.

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.

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.

The length of a compounding period is determined by the frequency of interest compounding.

Which of the following items does not use an accounting measure based on present value?

Determining the future value of one or more present day cash flows is known as ________.

Determining the present value of one or more future amounts is known as ________.

The method of converting a future dollar amount into its present dollar value by removing the time value of money is called ________.

Interest calculated on the original principal regardless of the amount of interest that has been paid or accrued in the past is ________.

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?

When payments take place at the beginning of each period, the series of cash flows is called a(n) ________.

Simple interest on a $620,000, 6%, 18-month note is ________.

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?

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%.)

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%.)

What is the time value of money?

Why do accountants need to be familiar with present value concepts?