Question 1

All of the following are necessary to compute the future value of a single amount except the
A)interest rate.
B)number of periods.
C)principal.
D)maturity value.

Accepted Answer

The future value calculation requires the principal amount, interest rate, and number of periods to determine the maturity value. The maturity value is the future value of the principal invested at a given interest rate for a set number of periods. Therefore, all options except D are necessary to compute the future value of a single amount.

Question 2

McGoff Company deposits $20,000 in a fund at the end of each year for 5 years.The fund pays interest of 4% compounded annually.The balance in the fund at the end of 5 years is computed by multiplying
A)$20,000 by the future value of 1 factor.
B)$100,000 by 1.04.
C)$100,000 by 1.20.
D)$20,000 by the future value of an annuity factor.

Accepted Answer

The balance in the fund at the end of 5 years is the future value of an annuity, which represents the accumulated value of a series of equal payments made at regular intervals, in this case $20,000 at the end of each year for 5 years, with interest compounded annually at 4%. Therefore, the correct choice is D.

Question 3

If $40,000 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?
A)$32,878
B)$48,000
C)$48,620
D)$48,666

Accepted Answer

D

Question 4

If $30,000 is deposited in a savings account at the end of each year and the account pays interest of 5% compounded annually, what will be the balance of the account at the end of 10 years?
A)$48,867
B)$315,000
C)$377,337
D)$450,000

Accepted Answer

We can solve this by using the formula for future value of an annuity:
$FV = P*\frac{(1+r)^n-1}{r}$, where:
P = Payment per period = $30,000$
r = Interest rate per period = 5% = 0.05
n = Number of periods = 10
Plugging in these values, we get:
$FV = 30,000*\frac{(1+0.05)^{10}-1}{0.05} = 377,337$
Therefore, the balance of the account at the end of 10 years will be $377,337. Option C is the correct answer.

Question 5

In computing the present value of an annuity, it is not necessary to know the number of discount periods.

Accepted Answer

The number of discount periods is essential in computing the present value of an annuity because it determines how many times the periodic payment is discounted back to its present value.

Question 6

Compound interest is computed on the principal and any interest earned that has not been paid or received.

Accepted Answer

This is the definition of compound interest.

Question 7

Which of the following is not necessary to know in computing the future value of an annuity?
A)Amount of the periodic payments
B)Interest rate
C)Number of compounding periods
D)Year the payments begin

Accepted Answer

Knowing the year the payments begin is not necessary for computing the future value of an annuity. The other factors - amount of periodic payments, interest rate, and number of compounding periods - are essential for calculating the future value.

Question 8

Which table has a factor of 1.00000 for 1 period at every interest rate?
A)Future value of 1
B)Future value of an annuity of 1
C)Present value of 1
D)Present value of an annuity of 1

Accepted Answer

The answer of Which table has a factor of 1.00000...

Question 9

The future value of a single amount is the value at a future date of a given amount invested now, assuming compound interest.

Accepted Answer

This is the definition of future value.

Question 10

With a financial calculator, one can solve for any interest rate or for any number of periods in a time value of money problem.

Accepted Answer

This is true. Financial calculators have built-in functions to solve for interest rate (I/Y), number of periods (N), present value (PV), future value (FV), and payment (PMT) in a time value of money problem.

Question 11

A higher discount rate produces a higher present value.

Accepted Answer

A higher discount rate reduces the present value, as it reflects a higher opportunity cost of not investing the funds elsewhere.

Question 12

The future value of 1 factor will always be
A)equal to 1.
B)greater than 1.
C)less than 1.
D)equal to the interest rate.

Accepted Answer

The future value of 1 factor represents the future value of $1 invested today. Since we expect to earn interest on our investment, the future value will be greater than 1.

Question 13

The factor 1.0609 is taken from the 3% column and 2 periods row in a certain table.From what table is this factor taken?
A)Future value of 1
B)Future value of an annuity of 1
C)Present value of 1
D)Present value of an annuity of 1

Accepted Answer

The factor 1.0609 for 3% interest over 2 periods is used to calculate the future value of a single sum (1) that is invested today. This factor is found in the "Future Value of 1" table, which shows how much a single sum will grow to at a certain interest rate over a number of periods.

Question 14

The future value of an annuity factor for 2 periods is equal to
A)1 plus the interest rate.
B)2 plus the interest rate.
C)2 minus the interest rate.
D)2.

Accepted Answer

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

Question 15

Many companies calculate the future value of the cash flows involved in an investment in evaluating long-term capital investments.

Accepted Answer

The answer of Many companies calculate the future value of...

Question 16

The decision to make long-term capital investments is best evaluated using discounting techniques that recognize the time value of money.

Accepted Answer

Discounting techniques take into account the time value of money by adjusting future cash flows to their present value. This allows for a more accurate evaluation of long-term capital investments, as it considers the opportunity cost of investing money now versus waiting to invest in the future.

Question 17

Compound interest is the return on principal
A)only.
B)for one or more periods.
C)plus interest for two or more periods.
D)for one period.

Accepted Answer

The answer of Compound interest is the return on principal
A)only.
B)for...

Question 18

Interest is the difference between the amount borrowed and the principal.

Accepted Answer

Interest is not the difference between the amount borrowed and the principal. It is the cost of borrowing money, calculated as a percentage of the principal. The total amount owed (principal plus interest) is what is paid back to the lender.

Question 19

The process of determining the present value is referred to as discounting the future amount.

Accepted Answer

This is because the present value is calculated by discounting the future amount using a discount rate or interest rate.

Question 20

When the periodic payments are not equal in each period, the future value can be computed by using a future value of an annuity table.

Accepted Answer

When periodic payments vary, the future value cannot be directly computed using a future value of an annuity table, as those tables assume equal payments. Instead, each payment must be individually calculated for its future value.

Quiz 15: Time Value of Money and Present Value Calculations

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

McGoff Company deposits $20,000 in a fund at the end of each year for 5 years.The fund pays interest of 4% compounded annually.The balance in the fund at the end of 5 years is computed by multiplying

If $40,000 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?

If $30,000 is deposited in a savings account at the end of each year and the account pays interest of 5% compounded annually, what will be the balance of the account at the end of 10 years?

In computing the present value of an annuity, it is not necessary to know the number of discount periods.

Compound interest is computed on the principal and any interest earned that has not been paid or received.

Which of the following is not necessary to know in computing the future value of an annuity?

Which table has a factor of 1.00000 for 1 period at every interest rate?

The future value of a single amount is the value at a future date of a given amount invested now, assuming compound interest.

With a financial calculator, one can solve for any interest rate or for any number of periods in a time value of money problem.

A higher discount rate produces a higher present value.

The future value of 1 factor will always be

The factor 1.0609 is taken from the 3% column and 2 periods row in a certain table.From what table is this factor taken?

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

Many companies calculate the future value of the cash flows involved in an investment in evaluating long-term capital investments.

The decision to make long-term capital investments is best evaluated using discounting techniques that recognize the time value of money.

Compound interest is the return on principal

Interest is the difference between the amount borrowed and the principal.

The process of determining the present value is referred to as discounting the future amount.

When the periodic payments are not equal in each period, the future value can be computed by using a future value of an annuity table.