Question 1

An annuity is a series of equal payments occurring at equal intervals.

Accepted Answer

This statement is true. An annuity is a financial product that involves a series of equal payments occurring at equal intervals, typically over a certain period of time.

Question 2

The future value of $100 compounded semiannually for three years at 12% equals $140.49.

Accepted Answer

The future value of $100 compounded semiannually for three years at 12% is calculated using the formula FV = P(1 + r/n)^(nt), where P = $100, r = 0.12, n = 2, and t = 3. This results in a future value greater than $140.49.

Question 3

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.

Accepted Answer

False

Question 4

Interest is the borrower's payment to the owner of an asset for its use.

Accepted Answer

This is a correct statement. Interest is the compensation paid by the borrower to the lender for the use of their money or asset.

Question 5

From the perspective of a depositor,a savings account is a liability with interest.

Accepted Answer

The answer of From the perspective of a depositor,a savings...

Question 6

An interest rate is also called a discount rate.

Accepted Answer

An interest rate is sometimes referred to as a discount rate, as it is used to discount future cash flows in financial valuations. However, the term discount rate can also refer to other rates used in financial calculations, such as the Federal Reserve's discount rate.

Question 7

The number of periods in a present value calculation can only be expressed in years.

Accepted Answer

The number of periods in a present value calculation can be expressed in any time unit, such as months, quarters, or days, as long as the interest rate or discount rate is adjusted accordingly.

Question 8

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%.

Accepted Answer

This can be calculated using the formula for future value of an annuity:
FV = PMT x (((1 + r)^n - 1) / r)
where PMT is the payment made at the end of each period, r is the annual interest rate, and n is the number of payment periods.

In this case, PMT = $5,000, r = 10%, and n = 6. Plugging these values into the formula, we get:

FV = $5,000 x (((1 + 0.1)^6 - 1) / 0.1) = $38,578

Therefore, the statement is true.

Question 9

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

Accepted Answer

The answer of At an annual interest rate of 8%...

Question 10

The number of periods in a future value calculation can only be expressed in years.

Accepted Answer

The number of periods in a future value calculation can be expressed in other units such as months, quarters, or days.

Question 11

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

Accepted Answer

An ordinary annuity is defined as a series of equal payments made or received at the end of equal intervals. This distinguishes it from an annuity due, where the payments are made or received at the beginning of each interval.

Question 12

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

Accepted Answer

Present and future value computations can be used to estimate the interest component of holding assets over time. Present value calculates the current value of an expected future sum of money while future value calculates what an asset will be worth at a future date based on a specific interest rate. By using these calculations, a company can estimate the interest earned or paid on an asset over time.

Question 13

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.

Accepted Answer

The future value of $28,225 compounded annually at 10% for five years is less than $50,000.

Question 14

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

Accepted Answer

The answer of A company is considering investing in a...

Question 15

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.

Accepted Answer

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. This is true.

Question 16

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

Accepted Answer

This statement is true, as future value can be calculated using the formula FV = P(1 + i)^n, where i is the interest rate, n is the number of periods, and P is the present value.

Question 17

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.

Accepted Answer

This statement is true. The length of one time period in a present value or future value table can vary depending on the situation and the frequency of compounding. It could be one year, one month, one quarter, or any other period of time.

Question 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.

Accepted Answer

The answer of The future value of an ordinary annuity...

Question 19

The present value of $5,000 per year for three years at 12% compounded annually is $12,009.

Accepted Answer

Using the formula for present value of an annuity, we have:

PV = C * ((1 - (1 + r)^(-n)) / r)
where PV is the present value, C is the annual payment, r is the interest rate, and n is the number of years.

Plugging in the given values, we get:

12009 = 5000 * ((1 - (1 + 0.12)^(-3)) / 0.12)

Solving for the present value, we get:

PV = 12009, which matches the given information. Therefore, the answer is true.

Question 20

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.

Accepted Answer

Interest is the payment made by a borrower to the owner of an asset, such as money or property, for the use of that asset. It is not the same as time, a savings account, always a liability, or always an asset.

Quiz 14: Applying Present and Future Values