Question 1

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

Accepted Answer

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

Question 2

Which table would you use to determine how much must be deposited now in order to provide for 5 annual withdrawals at the beginning of each year, starting one year hence?

Accepted Answer

The answer of Which table would you use to determine...

Question 3

Which factor would be greater - the present value of $1 for 10 periods at 8% per period or the future value of $1 for 10 periods at 8% per period?

Accepted Answer

The future value of $1 for 10 periods at 8% per period would be greater because interest would be compounded over time, resulting in a higher value than the present value of $1 for the same time period at the same interest rate.

Question 4

Which of the following is true?

Accepted Answer

In an ordinary annuity, rents occur at the end of each period whereas in an annuity due, rents occur at the beginning of each period. Therefore, option C is the correct answer.

Question 5

What is interest?

Accepted Answer

Interest is payment for the use of money, typically a percentage of the borrowed amount that is added to the repayment amount. It is not an equity investment, return on capital, or loan itself, but rather a component of loan agreements and other financial arrangements involving borrowed funds.

Question 6

Assume ABC Company deposits $25,000 with First National Bank in an account earning interest at 6% per annum, compounded semi-annually.How much will ABC have in the account after five years if interest is reinvested?

Accepted Answer

The future value of the investment can be calculated using the formula for compound interest: FV = P(1 + r/n)^(nt), where P is the principal amount ($25,000), r is the annual interest rate (0.06), n is the number of times interest is compounded per year (2), and t is the number of years (5). Plugging in the values, FV = 25000(1 + 0.06/2)^(2*5) = 25000(1.03)^10 ≈ $33,598.

Question 7

What is the relationship between the future value of one and the present value of one?

Accepted Answer

The present value of one is calculated by dividing one by the future value of one, reflecting the concept that a dollar today is worth more than a dollar in the future due to the potential earning capacity. This relationship is fundamental in finance, illustrating how money's value decreases over time when considering its future earning potential.

Question 8

What best describes the time value of money?

Accepted Answer

The time value of money refers to the concept that money available at the present time is worth more than the same amount of money in the future due to its earning potential through investment. The relationship between time and money is therefore the best choice for describing the time value of money.

Question 9

Under iGAAP, if an estimate is being developed for a large number of items with varied outcomes, then the expected cash flow approach is used.

Accepted Answer

The expected cash flow approach is used under iGAAP for developing estimates for a large number of items with varied outcomes.

Question 10

The rate used to discount the expected cash flows when using the expected cash flow approach includes an adjustment for credit risk.

Accepted Answer

The answer of The rate used to discount the expected...

Question 11

The risk-free rate of return is defined as the pure rate of return.

Accepted Answer

The risk-free rate of return is typically defined as the return on an investment with zero risk, often represented by the yield on government securities, not merely as the pure rate of return.

Question 12

If a savings account pays interest at 4% compounded quarterly, then the amount of $1 left on deposit for 8 years would be found in a table using

Accepted Answer

The answer of If a savings account pays interest at...

Question 13

Charlie Corp.is purchasing new equipment with a cash cost of $100,000 for an assembly line.The manufacturer has offered to accept $22,960 payment at the end of each of the next six years.How much interest will Charlie Corp.pay over the term of the loan?

Accepted Answer

The total payments over six years are $22,960 x 6 = $137,760. The interest paid is the total payments minus the principal amount: $137,760 - $100,000 = $37,760.

Question 14

Which of the following situations does not base an accounting measure on present values?

Accepted Answer

Prepaid insurance is not typically measured using present value calculations. Pensions, leases, and sinking funds all involve payments over time that are impacted by interest rates, making present value calculations necessary to accurately measure and record them.

Question 15

Which table would show the largest factor for an interest rate of 8% for five periods?

Accepted Answer

The future value of an annuity due of 1 will show the largest factor for an interest rate of 8% for five periods because payments are made at the beginning of each period, allowing more time for each payment to accrue interest compared to an ordinary annuity where payments are made at the end of each period.

Question 16

Which of the following tables would show the smallest factor for an interest rate of 10% for six periods?

Accepted Answer

The present value of an ordinary annuity of 1 would show the smallest factor for an interest rate of 10% for six periods. This is because the present value factor discounts the future cash flows back to their present value, and a smaller factor means less discounting and therefore a smaller present value.

Question 17

If you invest $50,000 to earn 8% interest, which of the following compounding approaches would return the lowest amount after one year?

Accepted Answer

The compounding approach that would return the lowest amount after one year would be annually. This is because with an annual compounding approach, the interest is only added to the principal once per year, resulting in less interest earned overall compared to more frequent compounding periods like daily, monthly or quarterly.

Question 18

What is not a variable that is considered in interest computations?

Accepted Answer

Assets are not considered in interest computations. The principal, interest rate, and time are the three main variables used to calculate interest.

Question 19

Which of the following tables would show the smallest value for an interest rate of 5% for six periods?

Accepted Answer

The table for Present value of 1 would show the smallest value for an interest rate of 5% for six periods as it calculates the present value of a future sum, while the other tables calculate the future value or an annuity.

Question 20

Which table would you use to determine how much you would need to have deposited three years ago at 10% compounded annually in order to have $1,000 today?

Accepted Answer

The correct table to use is the "present value of 1" table. This table helps determine the amount you would need to deposit in the past (three years ago, in this case) at a given interest rate (10% compounded annually) to achieve a specific future amount ($1,000). It essentially calculates the present value of a future sum.

Quiz 6: Accounting and the Time Value of Money