# Quiz 14: Appendix B: Time Value of Money

Business

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Q 4Q 4

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

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True False

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Q 6Q 6

The present value factor for determining the present value of a single sum to be received three years from today at 10% interest compounded semiannually is 0.7462.

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Q 7Q 7

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.

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Q 8Q 8

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

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Q 9Q 9

Sandra has a savings account that is now $50,000. She started with $28,225 and earned interest at 10% compounded annually. It took five years to accumulate the $50,000.

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Q 10Q 10

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

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Q 13Q 13

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

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Q 15Q 15

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

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True False

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Q 17Q 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%.

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Q 18Q 18

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.

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True False

Q 19Q 19

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.

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Multiple Choice

Q 20Q 20

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

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Multiple Choice

Q 21Q 21

Sam has a loan that requires a single payment of $4,000 at the end of three 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

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Multiple Choice

Q 22Q 22

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

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Multiple Choice

Q 23Q 23

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

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Multiple Choice

Q 24Q 24

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

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Multiple Choice

Q 25Q 25

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%

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Multiple Choice

Q 26Q 26

Crowe Company has acquired a building with a loan that requires payments of $20,000 every six months for five 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

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Multiple Choice

Q 27Q 27

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

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Multiple Choice

Q 28Q 28

A company is considering an investment that will return $20,000 at the end of each semiannual period for four 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

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Multiple Choice

Q 29Q 29

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

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Multiple Choice

Q 30Q 30

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

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Multiple Choice

Q 31Q 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

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Q 37Q 37

A company needs to have $200,000 in four years, and will create a fund to ensure 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 four years?

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Short Answer

Q 38Q 38

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?

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Q 39Q 39

Thompson Company has acquired a machine from a dealer which 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?

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Q 40Q 40

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

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Q 41Q 41

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?

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Q 42Q 42

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 eight years?

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Q 43Q 43

Troy has $105,000 now. He has a loan of $175,000 that he must pay at the end of five 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 five years?

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Q 44Q 44

Madera Iron Sculpting is planning to save the money needed to replace 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?

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Q 45Q 45

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

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Q 46Q 46

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

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Q 47Q 47

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?

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Q 48Q 48

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

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Q 49Q 49

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

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Q 50Q 50

A company is beginning a savings plan. It will save $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?

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Q 51Q 51

You hope to retire in 10 years. Regrettably you are only just now beginning to save money for this purpose. You expect to save $6,000 a year at an annual rate of 8%. How much will you have accumulated when you retire?

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Q 52Q 52

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

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Q 55Q 55

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

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Q 57Q 57

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

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