Question 1

Peter Johnson invests $35,516.80 now for a series of $5,000 annual returns beginning one year from now.Peter will earn 10% on the initial investment.How many annual payments will Peter receive?

Accepted Answer

To determine the number of annual payments that Peter will receive, we need to use the formula for the future value of an annuity:
FV = PMT x [(1 + r)^n - 1] / r
where FV is the future value, PMT is the annual payment, r is the annual interest rate, and n is the number of payments.
In this case, we know that FV = $35,516.80, PMT = $5,000, and r = 10% = 0.1. We can solve for n:
$35,516.80 = $5,000 x [(1 + 0.1)^n - 1] / 0.1
$7.10336 = (1.1)^n - 1
1.1^n = 8.10336
n = log(8.10336) / log(1.1) = 12.99
Since the number of annual payments must be a whole number, Peter will receive 13 annual payments. Therefore, the best choice is C.

Question 2

Match the items (1-5) by entering the appropriate code letter in the space provided.

Accepted Answer

The answer of Match the items (1-5) by entering the...

Question 3

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

Accepted Answer

This statement is true. Discounting the future amount involves calculating the present value of that amount, by accounting for factors such as the time value of money and expected return on investment.

Question 4

In present value calculations, the process of determining the present value is called

Accepted Answer

The process of determining the present value is called discounting, as it involves calculating the current value of future cash flows by applying a discount rate. This is a fundamental concept in finance and is used in various applications including investment analysis, capital budgeting, and valuation.

Question 5

In order to compute the present value of an annuity, it is necessary to know the 1.discount rate.2.number of discount periods and the amount of the periodic payments or receipts.

Accepted Answer

To compute the present value of an annuity, one needs to know the discount rate used to calculate the present value of future cash flows, the number of discount periods over which the annuity will be paid, and the amount of each periodic payment or receipt. Therefore, both options 1 and 2 are necessary to compute the present value of an annuity.

Question 6

A higher discount rate produces a higher present value.

Accepted Answer

A higher discount rate decreases the present value because it decreases the value of future cash flows being discounted to the present.

Question 7

Present value is based on

Accepted Answer

All of these factors are important in determining the present value of a future sum of money. The dollar amount to be received is a direct factor, the length of time until the amount is received affects the discount rate, and the interest rate is used to determine the present value factor.

Question 8

A $10,000, 6%, 5-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?

Accepted Answer

Since the note pays interest quarterly for five years, there would be 20 interest periods (4 per year, multiplied by 5 years). The interest rate is 6% per year, but since interest is paid quarterly, the period-interest combination should be divided by 4, resulting in a 1.5% interest rate per period. Therefore, the correct period-interest combination is 20 interest periods, 1.5% interest.

Question 9

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 10

Which of the following accounting problems does not involve a present value calculation?

Accepted Answer

The determination of the declining-balance depreciation expense is based on a fixed percentage of the asset's book value and does not involve a present value calculation. The other options all involve present value calculations in some capacity.

Question 11

Hazel Company has just purchased equipment that requires annual payments of $40,000 to be paid at the end of each of the next four years.The appropriate discount rate is 15%.What is the present value of the payments?

Accepted Answer

The present value of an annuity can be calculated using the formula PV = PMT × [(1 - (1 + r)^-n) / r], where PMT is the annual payment, r is the discount rate, and n is the number of periods. Plugging in the given values (PMT = $40,000, r = 0.15, n = 4), we get PV = $40,000 × [(1 - (1 + 0.15)^-4) / 0.15] ≈ $114,199.

Question 12

The present value of a long-term note or bond is a function of two variables.

Accepted Answer

The present value of a long-term note or bond is a function of multiple variables, including the principal amount, interest rate, time to maturity, and the frequency of compounding interest payments.

Question 13

If you are able to earn an 8% rate of return, what amount would you need to invest to have $30,000 one year from now?

Accepted Answer

To find out the amount you would need to invest, we can use the formula: 
Amount = (Initial amount) x (1 + rate of return)
Plugging in the given values, we get:
$30,000 = (Initial amount) x (1 + 0.08)
Simplifying this equation, we get:
Initial amount = $27,777.78
Rounding up to the nearest dollar, the answer is choice B: $27,778.

Question 14

Perdue Company has purchased equipment that requires annual payments of $30,000 to be paid at the end of each of the next six years.The appropriate discount rate is 12%.What amount will be used to record the equipment?

Accepted Answer

The amount used to record the equipment is the present value of the annuity payments. Using the formula for the present value of an annuity or a financial calculator, the present value of $30,000 paid annually for 6 years at a 12% discount rate is approximately $123,342.

Question 15

The present value of an annuity is the value now of a series of future receipts or payments, discounted assuming compound interest.

Accepted Answer

This is the correct definition of present value of an annuity.

Question 16

If you are able to earn a 15% rate of return, what amount would you need to invest to have $15,000 one year from now?

Accepted Answer

We can use the formula: FV = PV x (1 + r), where FV is the future value, PV is the present value, and r is the rate of return expressed as a decimal. We plug in the values we know and solve for PV: 15,000 = PV x (1 + 0.15). Simplifying this equation gives us PV = 15,000 / 1.15 = $13,043.48, which is closest to answer choice D of $13,044.

Question 17

John Reynolds deposited $10,000 in an account paying interest of 4% compounded annually.What amount will be in the account at the end of four years?

Accepted Answer

The answer of John Reynolds deposited $10,000 in an account...

Question 18

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

A financial calculator can solve for interest rate or number of periods in a time value of money problem using various functions, such as present value, future value, payment, and interest rate.

Question 19

If the single amount of $2,000 is to be received in two years and discounted at 11%, its present value is

Accepted Answer

The present value (PV) of a future amount can be calculated using the formula PV = FV / (1 + r)^n, where FV is the future value, r is the discount rate, and n is the number of periods. Plugging in the given values: PV = $2,000 / (1 + 0.11)^2 = $2,000 / (1.11)^2 = $2,000 / 1.2321 = $1,623 (approximately).

Question 20

Wingate Company borrowed $90,000 on January 2, 2020.This amount plus accrued interest of 6% compounded annually will be repaid at the end of three years.What amount will Wingate repay at the end of the third year?

Accepted Answer

The answer of Wingate Company borrowed $90,000 on January 2,...

Quiz 14: Time Value of Money