Reference no: EM13492558

Foxtrot Dancing will invest $2,500 per year for 8 years. What table is used to determine the amount accumulated at the end of the 8 years?

Future value of an annuity

Future value of a single amount

Present value of a single amount

Present value of an annuity

What is the process of determining the present value called?

Discounting

Accruing interest

Amortizing

Compounding




Of which of the following is the present value of a long-term note or bond not a function?

Discount rate

Payment amounts

Length of time until the amounts are paid

Future value of an annuity

Jenny Carson invested $18,000 at 8% annual interest and left the money invested without withdrawing any of the interest for 15 years. At the end of the 15 years, Jenny decided to withdraw the accumulated amount of money. Jenny has found the following values in various tables related to the time value of money.

Present value of 1 for 15 periods at 8% 0.31524
Future value of 1 for 15 periods at 8% 3.17217
Present value of an annuity of 1 for 15 periods at 8% 8.55948
Future value of an annuity of 1 for 15 periods at 8% 27.15211

Which factor would she use to compute the amount she would withdraw, assuming that the investment earns interest compounded annually?

0.31524.

3.17217.

8.55948.

27.15211.

 

Multiple Choice Question 25

Jenny Carson invested $18,000 at 8% annual interest and left the money invested without withdrawing any of the interest for 15 years. At the end of the 15 years, Jenny decided to withdraw the accumulated amount of money. Jenny has found the following values in various tables related to the time value of money.

Present value of 1 for 15 periods at 8% 0.31524
Future value of 1 for 15 periods at 8% 3.17217
Present value of an annuity of 1 for 15 periods at 8% 8.55948
Future value of an annuity of 1 for 15 periods at 8% 27.15211

To the closest dollar, which amount would she withdraw, assuming that the investment earns interest compounded annually?

$154,071.

$23,675.

$57,099.

$48,875.

Joan Crawford borrowed $130,000 on June 1, 2011. This amount plus accrued interest at 8% compounded annually is to be repaid on June 1, 2024. Joan has obtained the following values related to the time value of money to help her with her financing process and compounded interest decisions.

Present value of 1 for 13 periods at 8% 0.36770
Future value of 1 for 13 periods at 8% 2.71962
Present value of an annuity of 1 for 13 periods at 8% 7.90378
Future value of an annuity of 1 for 13 periods at 8% 21.49530

To the closest dollar, how much will Joan have to repay on June 1, 2024?

$232,750.

$265,200.

$621,414.

$353,550.

Dick and Jane Smith invested $10,000 in a savings account paying 5% annual interest when their son, Jason, was born. They also deposited $500 on each of his birthdays until he was 20 (including his 20th birthday). Dick and Jane have obtained the following values related to the time value of money to help them with their planning process for their compounded interest decisions.

Present value of 1 for 20 periods at 5% 0.37689
Future value of 1 for 20 periods at 5% 2.65330
Present value of an annuity of 1 for 20 periods at 5% 12.46221
Future value of an annuity of 1 for 20 periods at 5% 33.06595

To the closest dollar, how much was in the savings account on his 20th birthday (after the last deposit)?

$26,533.

$30,000.

$53,066.

$43,066

If $30,000 is put in a savings account paying interest of 4% compounded annually, what amount will be in the account at the end of 5 years?

$25,644.

$36,500.

$35,096.

$36,000

The future value of 1 factor will always be

less than 1.

greater than 1.

equal to the interest rate.

equal to 1.

All of the following are necessary to compute the future value of a single amount except the

number of periods.

maturity value.

interest rate.

principal.

The future value of an annuity factor for 2 periods is equal to

1 plus the interest rate.

2 plus the interest rate.

2 minus the interest rate.

Present value is based on

a. the dollar amount to be received.

b. the length of time until the amount is received.

c. the interest rate.

d. all of these.

Which of the following discount rates will produce the smallest present value?

3%.

7%.

8%.

6%.

Danner Corporation earns 12% on an investment that will return $900,000, 7 years from now. Below is some of the time value of money information that Danner has compiled that might help in planning compounded interest decisions.

Present value of 1 for 7 periods at 12% 0.45235
Future value of 1 for 7 periods at 12% 2.21068
Present value of an annuity of 1 for 7 periods at 12% 4.56376
Future value of an annuity of 1 for 7 periods at 12% 10.08901

To the closest dollar, what is the amount Danner should invest now to earn this rate of return?

$198,961.

$756,000.

$407,115.

$410,738.

Donaldson Company is considering an investment, which will return a lump sum of $450,000 four years from now. Below is some of the time value of money information that Donaldson has compiled that might help in planning compounded interest decisions.

Present value of 1 for 4 periods at 10% 0.68301
Future value of 1 for 4 periods at 10% 1.46410
Present value of an annuity of 1 for 4 periods at 10% 3.16986
Future value of an annuity of 1 for 4 periods at 10% 4.64100

To the closest dollar, what amount should Donaldson Company pay for this investment to earn a 10% return?

$270,000.

$307,355.

$356,609.

$180,000.

Barnard Company is considering investing in an annuity contract that will return $40,000 annually at the end of each year for 12 years. Barnard has obtained the following values related to the time value of money to help in its planning process and compounded interest decisions.

Present value of 1 for 12 periods at 9% 0.35554
Future value of 1 for 12 periods at 9% 2.81267
Present value of an annuity of 1 for 12 periods at 9% 7.16073
Future value of an annuity of 1 for 12 periods at 9% 20.14072
To the closest dollar, what amount should Ritz Company pay for this investment if it earns a 9% return?

$286,429.

$805,629.

$592,507.

$497,066.


A $10,000, 8%, 10-year note payable that pays interest quarterly would be discounted back to its present value by using tables that would indicate which one of the following period-interest combinations?

40 interest periods, 2% interest.

10 interest periods, 2% interest.

40 interest periods, 8% interest.

10 interest periods, 8% interest.

If a bond has a contract rate of interest of 6%, but the discount rate of interest is 8%, the bond

will sell at a premium (more than face value).

may sell at either a premium or a discount.

will sell at its face value.

will sell at a discount (less than face value).

When determining the proceeds received when issuing a bond, the factor applied to the amount of the interest payments is determined from the table of the

present value of 1.

present value of an annuity of 1.

future value of 1.

future value of an annuity of 1.

When determining the proceeds received when issuing a bond, the factor applied to the amount of the bond principal is determined from the table of the

present value of an annuity 1.

present value of 1.

future value of 1.

future value of an annuity 1.