Question 1

Why is one dollar now worth more than one dollar in the future?
A) Funds can be invested in earning assets to yield a positive return
B) The amount to be received in the future is smaller than the amount to be paid off today
C) The value of interest declines over time
D) The time value of money depreciates over long periods of time

Accepted Answer

The concept of the time value of money explains that a dollar today is worth more than a dollar in the future because it can be invested to earn a return, making it worth more over time.

Question 2

If Best Buy invests $600,000 today at 6% annual interest and the money is compounded semiannually, how much will be in the bank account one year from the date invested?
A) $636,540
B) $648,000
C) $698,880
D) $648,720

Accepted Answer

A

Question 3

Marshall, Inc. wishes to accumulate $600,000 to be used to pay off a balloon note at the end of 4 years. How much will Marshall invest today to accumulate the desired amount if the investment earns an annual rate of 12% compounded quarterly? (Select the closest amount)
A) $352,000
B) $ 65,248
C) $254,208
D) $373,800

Accepted Answer

D

Question 4

Marshall, Inc. wishes to accumulate $500,000 to be used to pay off a loan at the end of 10 years. How much will Marshall deposit each year for 10 years, beginning at the end of the first year, to accumulate the desired amount if the investment earns an annual rate of 12%? (Select the closest amount)
A) $22,793
B) $28,492
C) $16,667
D) $13,216

Accepted Answer

To solve this, we use the formula for the future value of an annuity, which is FV = P * [(1 + r)^n - 1] / r, where FV is the future value ($500,000), P is the annual payment, r is the annual interest rate (12% or 0.12), and n is the number of periods (10 years). Rearranging the formula to solve for P gives us P = FV / [(1 + r)^n - 1] / r. Plugging in the numbers gives us P = $500,000 / [(1 + 0.12)^10 - 1] / 0.12, which calculates to approximately $28,492.

Question 5

Ford Motor Company wants to accumulate $800,000 to pay off an equipment balloon note due in 3 years. How much should Ford Motor Company deposit each quarter beginning one quarter from today to accumulate the amount required if the bank pays 4% annual interest compounded quarterly?

Accepted Answer

The answer of Ford Motor Company wants to accumulate $800,000...

Question 6

General Electric needs to have $100 million accumulated to fund health insurance payments for its retirees. Will General Electric have enough accumulated at the end of 3 years if it deposits $75 million today if compounding occurs semi-annually with an annual rate of 8%?

Accepted Answer

The answer of General Electric needs to have $100 million...

Question 7

General Electric borrowed $800,000 to buy equipment to be repaid as an installment note monthly over 2.5 years. How much will General Electric pay each month if payments begin one month from now and the loan rate is 12% compounded monthly?

Accepted Answer

The answer of General Electric borrowed $800,000 to buy equipment...

Question 8

General Electric borrowed $300,000,000 to buy equipment with the principal and interest to be repaid as a balloon note at the end of 5 years. How much will General Electric pay to liquidate the principal of the note at the maturity date if interest is 8% compounded quarterly?

Accepted Answer

The answer of General Electric borrowed $300,000,000 to buy equipment...

Question 9

Compute the present value for each of the following amounts.
a. $100,000 received in 8 years if annual interest rate is: (1) 10% compounded annually or (2) 10% compounded semiannually
b. $10,000 received at the end of each year for the next 4 years if the money is worth 8% per year compounded annually

Accepted Answer

The answer of Compute the present value for each of...

Quiz 15: Appendix C: Accounting and the Time Value of Money

Why is one dollar now worth more than one dollar in the future?

If Best Buy invests $600,000 today at 6% annual interest and the money is compounded semiannually, how much will be in the bank account one year from the date invested?

Marshall, Inc. wishes to accumulate $600,000 to be used to pay off a balloon note at the end of 4 years. How much will Marshall invest today to accumulate the desired amount if the investment earns an annual rate of 12% compounded quarterly? (Select the closest amount)

Ford Motor Company wants to accumulate $800,000 to pay off an equipment balloon note due in 3 years. How much should Ford Motor Company deposit each quarter beginning one quarter from today to accumulate the amount required if the bank pays 4% annual interest compounded quarterly?

General Electric needs to have $100 million accumulated to fund health insurance payments for its retirees. Will General Electric have enough accumulated at the end of 3 years if it deposits $75 million today if compounding occurs semi-annually with an annual rate of 8%?

General Electric borrowed $800,000 to buy equipment to be repaid as an installment note monthly over 2.5 years. How much will General Electric pay each month if payments begin one month from now and the loan rate is 12% compounded monthly?

General Electric borrowed $300,000,000 to buy equipment with the principal and interest to be repaid as a balloon note at the end of 5 years. How much will General Electric pay to liquidate the principal of the note at the maturity date if interest is 8% compounded quarterly?