Question 1

Compound interest is computed quarterly on $700 for seven years at 12 percent annual interest.The future value table is used by multiplying the $700 by which factor?

Accepted Answer

Compound interest calculated quarterly over seven years at an annual rate of 12% means the interest is compounded 4 times a year (quarterly) for 7 years, totaling 28 periods, and the interest rate per period is 12%/4 = 3%.

Question 2

The higher the interest rate assumed,the

Accepted Answer

The higher the interest rate, the lower the present value of a sum due in the future because a higher discount rate is used to calculate present value, reducing the value of future cash flows.

Question 3

A business accepts a 12 percent,$94,000 note due in three years.Assuming simple interest,how much will the business receive when the note falls due?

Accepted Answer

The answer of A business accepts a 12 percent,$94,000 note...

Question 4

Which of the following phrases is not descriptive of an ordinary annuity?

Accepted Answer

An ordinary annuity involves payments made at the end of equal periods of time, not at the beginning.

Question 5

Use this information to answer the following question.  What amount must be deposited today to grow to $900 in three years,assuming an APR of 7 percent?

Accepted Answer

We can use the formula for future value of a lump sum: FV = PV * (1 + r)^n
where FV = $900, r = 0.07 (7% APR), and n = 3 years. We want to find PV (present value).
Solving for PV, we get:
PV = FV / (1 + r)^n
PV = $900 / (1 + 0.07)^3
PV = $734.40
Therefore, the amount that must be deposited today is $734.40, which corresponds to answer choice B.

Question 6

Hilda wishes to deposit an amount into her savings account that will enable her to withdraw $1,600 per year for the next four years.She should deposit an amount equal to $1,600 multiplied by the

Accepted Answer

Hilda needs to deposit enough to withdraw $1,600 per year for four years, which is an ordinary annuity. Therefore, she should use the present value of an ordinary annuity factor to determine how much to deposit.

Question 7

A company wishes to make annual contributions into a fund intended to retire $700,000 in debt five years from now.The amount to contribute each year equals $700,000

Accepted Answer

The answer of A company wishes to make annual contributions...

Question 8

Use this information to answer the following question.  You have the opportunity to purchase a machine for $10,000.After careful study of expected costs and revenues,you estimate that the machine will produce a net cash flow of $3,200 annually and will last 5 years.Based on an interest rate of 7 percent,determine the present value of the machine and if the machine should be purchased.

Accepted Answer

The present value of the machine can be calculated using the formula PV = C*[1-(1+r)^-n]/r, where C is the cash flow, r is the interest rate, and n is the number of years. Plugging in the numbers, we get PV = 3200*[1-(1+0.07)^-5]/0.07 = $13,120. Since the present value is greater than the cost of the machine, it is a good investment and should be purchased. Therefore, the answer is B.

Question 9

Use this information to answer the following question.  What amount must be deposited today so that $1,200 may be withdrawn at the end of each year for three years,assuming an APR of 7 percent?

Accepted Answer

The answer of Use this information to answer the following...

Question 10

The future value of an ordinary annuity table would not include the factor

Accepted Answer

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

Question 11

Use this information to answer the following question.  A deposit of $5,800 made at the end of each year for three years would grow to how much,assuming an APR of 12 percent?

Accepted Answer

The answer of Use this information to answer the following...

Question 12

Use this information to answer the following question.  What is the present value of receiving $800 at the end of each year for three years,assuming an APR of 7 percent?

Accepted Answer

The answer of Use this information to answer the following...

Question 13

Which of the following statements is true regarding the time value of money?

Accepted Answer

The time value of money principle states that money available at the present time is worth more than the same amount in the future due to its earning potential. This means that receiving $1 now is more valuable than receiving $1 a year from now because the $1 can be invested to earn interest or returns in the meantime. Therefore, option D is the correct statement. Options A and B are incorrect because compound interest does not produce equal amounts of interest each period on a fixed deposit, and earning compound interest is more beneficial than earning simple interest as it results in higher returns. Option C is also incorrect because delaying payment can provide an opportunity to earn interest on the money that would have been used for payment.

Question 14

Second National Bank computes interest semiannually.If the annualized interest rate (APR)is currently 6 percent,the amount deposited today should be multiplied by which future value factor to calculate the amount that will accumulate by the end of 10 years?

Accepted Answer

Since the interest is computed semiannually, there will be a total of 20 semiannual periods over 10 years. Using the formula for future value with semiannual compounding:

FV = PV x (1 + r/n)^(nt)

Where PV is the present value (amount deposited today), r is the annual interest rate (APR), n is the number of compounding periods in a year (2 for semiannual), and t is the number of years.

For this problem, we have:

PV x (1 + 0.06/2)^(2x10) = FV

Simplifying:

PV x 1.0618^20 = FV

The future value factor for 20 semiannual periods at 3% (half of the annual 6% rate) is 1.0618^20. Therefore, the answer is B.

Question 15

Use this information to answer the following question.  A single deposit of $7,000 made at the beginning of period 1 and earning 12 percent interest compounded annually would grow to how much at the end of three years?

Accepted Answer

The answer of Use this information to answer the following...

Question 16

Use this information to answer the following question.  If an accumulation of $16,000 is desired at the end of three years,what amount must be deposited at the end of each of the three years,assuming an APR of 12 percent?

Accepted Answer

The answer of Use this information to answer the following...

Question 17

A company purchases an asset on a deferred payment plan,ultimately paying $15,000.On the payment date,the company would

Accepted Answer

The answer of A company purchases an asset on a...

Question 18

Use this information to answer the following question.  If $200 is invested at 7 percent APR,which of the following formulas would be used to determine to how much the deposit would grow at the end of three years?

Accepted Answer

The answer of Use this information to answer the following...

Question 19

A business accepts a 9 percent,$50,000 note due in 120 days.Assuming simple interest,how much (amount rounded)will the business receive when the note falls due?

Accepted Answer

Simple interest is calculated by multiplying the principal amount, interest rate, and time. 
In this case, the principal amount is $50,000, the interest rate is 9%, and the time is 120/365 years (assuming a 365-day year). 
Simple interest = $50,000 x 0.09 x (120/365) 
Simple interest = $1,480 
When the note falls due, the business will receive the principal ($50,000) plus the simple interest ($1,480), which equals $51,480. Therefore, the best choice is C.

Question 20

Fergus Company is considering the purchase of a machine that will save the company $4,000 per year in operating costs for a period of seven years.The most it should pay for the machine is equal to

Accepted Answer

The present value of the annuity should be equal to or greater than the cost of the machine. Therefore, the most Fergus Company should pay is $4,000 multiplied by the present value of an ordinary annuity for 7 periods.

Quiz 11: Current Liabilities and Fair Value Accounting

Compound interest is computed quarterly on $700 for seven years at 12 percent annual interest.The future value table is used by multiplying the $700 by which factor?

The higher the interest rate assumed,the

A business accepts a 12 percent,$94,000 note due in three years.Assuming simple interest,how much will the business receive when the note falls due?

Which of the following phrases is not descriptive of an ordinary annuity?

Use this information to answer the following question. What amount must be deposited today to grow to $900 in three years,assuming an APR of 7 percent?

Hilda wishes to deposit an amount into her savings account that will enable her to withdraw $1,600 per year for the next four years.She should deposit an amount equal to $1,600 multiplied by the

A company wishes to make annual contributions into a fund intended to retire $700,000 in debt five years from now.The amount to contribute each year equals $700,000

Use this information to answer the following question. What amount must be deposited today so that $1,200 may be withdrawn at the end of each year for three years,assuming an APR of 7 percent?

The future value of an ordinary annuity table would not include the factor

Use this information to answer the following question. A deposit of $5,800 made at the end of each year for three years would grow to how much,assuming an APR of 12 percent?

Use this information to answer the following question. What is the present value of receiving $800 at the end of each year for three years,assuming an APR of 7 percent?

Which of the following statements is true regarding the time value of money?

Second National Bank computes interest semiannually.If the annualized interest rate (APR) is currently 6 percent,the amount deposited today should be multiplied by which future value factor to calculate the amount that will accumulate by the end of 10 years?

Use this information to answer the following question. A single deposit of $7,000 made at the beginning of period 1 and earning 12 percent interest compounded annually would grow to how much at the end of three years?

Use this information to answer the following question. If an accumulation of $16,000 is desired at the end of three years,what amount must be deposited at the end of each of the three years,assuming an APR of 12 percent?

A company purchases an asset on a deferred payment plan,ultimately paying $15,000.On the payment date,the company would

Use this information to answer the following question. If $200 is invested at 7 percent APR,which of the following formulas would be used to determine to how much the deposit would grow at the end of three years?

A business accepts a 9 percent,$50,000 note due in 120 days.Assuming simple interest,how much (amount rounded) will the business receive when the note falls due?

Fergus Company is considering the purchase of a machine that will save the company $4,000 per year in operating costs for a period of seven years.The most it should pay for the machine is equal to