Question 1

Barber Company will receive $1,000,000 in 7 years.If the appropriate interest rate is 10%, the present value of the $1,000,000 receipt is
A)$510,000.
B)$513,160.
C)$1,510,000.
D)$1,948,720.

Accepted Answer

We can use the formula for present value of a future sum:

PV = FV / (1 + r)^n

Where PV is present value, FV is future value, r is the interest rate, and n is the number of periods.

Plugging in the given values:

PV = 1,000,000 / (1 + 0.1)^7

PV = 1,000,000 / 1.94872

PV = $513,160

Therefore, the present value of the $1,000,000 receipt is $513,160.

Question 2

John Jones won a lottery that will pay him $2,000,000 after twenty years.Assuming an appropriate interest rate is 5% compounded annually, what is the present value of this amount?
A)$2,000,000
B)$5,306,600
C)$24,924,420
D)$753,780

Accepted Answer

To calculate the present value of the lottery winnings, we need to use the formula for present value of a future sum:
PV = FV / (1 + r) ^ n
PV = present value
FV = future value
r = interest rate
n = number of years

In this case, FV = €2,000,000, r = 5%, and n = 20. Substituting these values into the formula, we get:
PV = 2,000,000 / (1 + 0.05) ^ 20
PV = €753,780

Therefore, the correct answer is D.

Question 3

Barkley Company will receive $300,000 in a future year.If the future receipt is discounted at an interest rate of 8%, its present value is $189,051.In how many years is the $300,000 received?
A)5 years
B)6 years
C)7 years
D)8 years

Accepted Answer

The answer of Barkley Company will receive $300,000 in a...

Question 4

What amount should be deposited in a bank today to grow to $3,000 three years from today?
A)$3,000 ÷ 0.751
B)$3,000 × 0.909 × 3
C)($3,000 × 0.909) + ($3,000 × 0.826) + ($3,000 × 0.751)
D)$3,000 × 0.751

Accepted Answer

The answer of What amount should be deposited in a...

Question 5

If Jethro wanted to save a set amount each month in order to buy a new pick-up truck when the new models are next available, which time value concept would be used to determine the monthly payment?
A)Present value of one
B)Future value of one
C)Present value of an annuity due
D)Future value of an ordinary annuity

Accepted Answer

Jethro wants to save a fixed amount each month to reach a future goal (buying a new pick-up truck). This fits the definition of a future value of an ordinary annuity calculation, as he is making regular payments (the annuity) and wants to know the future value of these payments.

Question 6

Bella requires $120,000 in four years to purchase a new home.What amount must be invested today in an investment that earns 6% interest, compounded annually?
A)$95,051
B)$98,724
C)$145,336
D)$151,497

Accepted Answer

The answer of Bella requires $120,000 in four years to...

Question 7

Dunston Company will receive $200,000 in a future year.If the future receipt is discounted at an interest rate of 10%, its present value is $102,632.In how many years is the $200,000 received?
A)5 years
B)6 years
C)7 years
D)8 years

Accepted Answer

Using the formula for present value, we have:
PV=FV/(1+i)^n
where PV is the present value, FV is the future value, i is the interest rate and n is the number of years.
Substituting the given values, we have:
102,632=200,000/(1+0.10)^n
Simplifying, we get:
(1+0.10)^n=200,000/102,632
Using a calculator, we get n=6.99 which can be rounded off to 7 years.
Therefore, the answer is C) 7 years.

Question 8

Jane wants to set aside funds to take an around the world cruise in four years.Assuming that Jane has $8,000 to invest today in an account expected to earn 6% per annum, how much will she have to spend on her vacation?
A)$6,336
B)$10,100
C)$34,997
D)$10,705

Accepted Answer

The answer of Jane wants to set aside funds to...

Question 9

What would you pay for an investment that pays you $500,000 after forty years? Assume that the relevant interest rate for this type of investment is 6%.
A)$15,590
B)$155,900
C)$48,610
D)$51,835

Accepted Answer

The answer of What would you pay for an investment...

Question 10

Angie invested $100,000 she received from her grandmother today in a fund that is expected to earn 10% per annum.To what amount should the investment grow in five years if interest is compounded semi-annually?
A)$155,134
B)$161,050
C)$162,890
D)$177,156

Accepted Answer

We can use the formula for compound interest: A = P(1 + r/n)^(nt), where A is the amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the time in years.

Substituting the given values, we get:
A = 100,000(1 + 0.10/2)^(2*5)
A = 100,000(1.05)^10
A = $162,889.46

Therefore, the investment should grow to $162,890 in five years if interest is compounded semi-annually. The closest answer choice is C.

Question 11

On January 1, 2015, Ball Co.exchanged equipment for a $200,000 zero-interest-bearing note due on January 1, 2018.The prevailing rate of interest for a note of this type at January 1, 2015 was 10%.The present value of $1 at 10% for three periods is 0.75.What amount of interest revenue should be included in Ball's 2016 income statement?
A)$0
B)$15,000
C)$16,500
D)$20,000

Accepted Answer

The present value of the note at the time of exchange is $200,000 * 0.75 = $150,000. The interest revenue for 2016 is calculated on the carrying amount of the note at the beginning of 2016, which is $150,000 plus the interest accrued in 2015 ($15,000), totaling $165,000. The interest revenue for 2016 is $165,000 * 10% = $16,500.

Question 12

At the end of two years, what will be the balance in a savings account paying 6% annually if $10,000 is deposited today? The future value of one at 6% for one period is 1.06.
A)$10,000
B)$10,600
C)$11,200
D)$11,236

Accepted Answer

To calculate the balance after two years, we need to multiply the initial deposit by the future value factor for two years at 6% interest.
Future value factor for two years at 6% interest= 1.06^2= 1.1236
So, the balance after two years= €10,000 x 1.1236= €11,236
Therefore, the correct answer is D.

Question 13

Altman Company will invest $500,000 today.The investment will earn 6% for 5 years, with no funds withdrawn.In 5 years, the amount in the investment fund is
A)$500,000.
B)$650,000.
C)$669,115.
D)$402,087.

Accepted Answer

The formula to calculate future value (FV) is:
FV = PV x (1+r)^n
where PV is the present value, r is the interest rate, and n is the number of years.

Using this formula, we can calculate the future value of Altman Company's investment:
FV = $500,000 x (1+0.06)^5
FV = $669,115

Therefore, the best choice is C with an explanation.

Question 14

Mordica Company will receive $200,000 in 7 years.If the appropriate interest rate is 10%, the present value of the $200,000 receipt is
A)$102,000.
B)$102,632.
C)$302,000.
D)$389,744.

Accepted Answer

Using the formula for present value, where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods:
PV = FV / (1 + r)^n
PV = 200,000 / (1 + 0.10)^7
PV = 102,632
Therefore, the present value of the $200,000 receipt is $102,632. Option B is the correct answer.

Question 15

What would you pay for an investment that pays you $20,000 at the end of each year for the next ten years and then returns a maturity value of $300,000 after ten years? Assume that the relevant interest rate for this type of investment is 8%.
A)$138,958
B)$134,202
C)$144,936
D)$273,158

Accepted Answer

The answer of What would you pay for an investment...

Question 16

Milner Company will invest $400,000 today.The investment will earn 6% for 5 years, with no funds withdrawn.In 5 years, the amount in the investment fund is
A)$400,000.
B)$520,000.
C)$535,292.
D)$536,116.

Accepted Answer

To calculate the amount of the investment at the end of 5 years, we can use the formula for compound interest: A = P*(1+r)^t, where A is the amount, P is the principal (initial investment), r is the interest rate, and t is the time period.

Plugging in the given values, we get: A = 400,000*(1+0.06)^5 = $535,292.

Therefore, the best choice is C.

Question 17

Jane wants to set aside funds to take an around the world cruise in four years.Jane expects that she will need $15,000 for her dream vacation.If she is able to earn 8% per annum on an investment, how much will she have to set aside today so that she will have sufficient funds available?
A)$3,329
B)$20,406
C)$11,025
D)$10,208

Accepted Answer

To calculate the amount Jane needs to set aside today, we need to use the present value formula for compound interest: 
Present Value = Future Value / (1 + interest rate)^number of years

In this case, the future value is $15,000, the interest rate is 8%, and the number of years is 4. Plugging these values into the formula, we get:

Present Value = $15,000 / (1 + 0.08)^4 
Present Value = $11,025

Therefore, Jane needs to set aside $11,025 today in order to have $15,000 in four years, earning 8% interest per year.

Question 18

What interest rate (the nearest percent) must Charlie earn on a $300,000 investment today so that he will have $760,000 after 12 years?
A)6%
B)7%
C)8%
D)9%

Accepted Answer

We can use the formula: 
Future Value = Present Value x (1 + r)^n 
where r is the interest rate, n is the number of years, and we need to solve for r. 
Plugging in the given values, we get: 
760,000 = 300,000 x (1 + r)^12 
Simplifying, we get: 
(1 + r)^12 = 760,000 / 300,000 
(1 + r)^12 = 2.53333 
Taking the twelfth root and subtracting 1, we get: 
r = 0.08 or 8% 
Therefore, Charlie must earn an interest rate of 8% to reach his goal.

Question 19

Ethan has $50,000 to invest today at an annual interest rate of 4%.Approximately how many years will it take before the investment grows to $101,250?
A)18 years
B)20 years
C)16 years
D)11 years

Accepted Answer

The answer of Ethan has $50,000 to invest today at...

Question 20

Anna has $30,000 to invest.She requires $50,000 for a down payment for a house.If she is able to invest at 6%, how many years will it be before she will accumulate the desired balance?
A)6 years
B)7 years
C)8 years
D)9 years

Accepted Answer

The answer of Anna has $30,000 to invest.She requires $50,000...

Quiz 6: Accounting and the Time Value of Money

Barber Company will receive $1,000,000 in 7 years.If the appropriate interest rate is 10%, the present value of the $1,000,000 receipt is

John Jones won a lottery that will pay him $2,000,000 after twenty years.Assuming an appropriate interest rate is 5% compounded annually, what is the present value of this amount?

Barkley Company will receive $300,000 in a future year.If the future receipt is discounted at an interest rate of 8%, its present value is $189,051.In how many years is the $300,000 received?

What amount should be deposited in a bank today to grow to $3,000 three years from today?

If Jethro wanted to save a set amount each month in order to buy a new pick-up truck when the new models are next available, which time value concept would be used to determine the monthly payment?

Bella requires $120,000 in four years to purchase a new home.What amount must be invested today in an investment that earns 6% interest, compounded annually?

Dunston Company will receive $200,000 in a future year.If the future receipt is discounted at an interest rate of 10%, its present value is $102,632.In how many years is the $200,000 received?

Jane wants to set aside funds to take an around the world cruise in four years.Assuming that Jane has $8,000 to invest today in an account expected to earn 6% per annum, how much will she have to spend on her vacation?

What would you pay for an investment that pays you $500,000 after forty years? Assume that the relevant interest rate for this type of investment is 6%.

Angie invested $100,000 she received from her grandmother today in a fund that is expected to earn 10% per annum.To what amount should the investment grow in five years if interest is compounded semi-annually?

At the end of two years, what will be the balance in a savings account paying 6% annually if $10,000 is deposited today? The future value of one at 6% for one period is 1.06.

Altman Company will invest $500,000 today.The investment will earn 6% for 5 years, with no funds withdrawn.In 5 years, the amount in the investment fund is

Mordica Company will receive $200,000 in 7 years.If the appropriate interest rate is 10%, the present value of the $200,000 receipt is

What would you pay for an investment that pays you $20,000 at the end of each year for the next ten years and then returns a maturity value of $300,000 after ten years? Assume that the relevant interest rate for this type of investment is 8%.

Milner Company will invest $400,000 today.The investment will earn 6% for 5 years, with no funds withdrawn.In 5 years, the amount in the investment fund is

Jane wants to set aside funds to take an around the world cruise in four years.Jane expects that she will need $15,000 for her dream vacation.If she is able to earn 8% per annum on an investment, how much will she have to set aside today so that she will have sufficient funds available?

What interest rate (the nearest percent) must Charlie earn on a $300,000 investment today so that he will have $760,000 after 12 years?

Ethan has $50,000 to invest today at an annual interest rate of 4%.Approximately how many years will it take before the investment grows to $101,250?

Anna has $30,000 to invest.She requires $50,000 for a down payment for a house.If she is able to invest at 6%, how many years will it be before she will accumulate the desired balance?