Question 1

The present value of an annuity is the present value of a series of equal cash flows that occur in the future.

Accepted Answer

The definition of present value of an annuity is the present value of a series of equal cash flows that occur in the future.

Question 2

The formula to compute the present value of a dollar is PV = FV x . $\frac { 1 } { ( 1 + i ) ^ { n } }$

Accepted Answer

The present value (PV) formula is correctly given as PV = FV x $\frac { 1 } { ( 1 + i ) ^ { n } }$, where FV is the future value, i is the interest rate, and n is the number of periods.

Question 3

FASB's Statement of Financial Accounting Concepts No. 7 does not address recognition issues and therefore does not address when fair value should be based on present value, but it does provide general principles governing the use of present value and the objectives of present value accounting measurements.

Accepted Answer

FASB's Statement of Financial Accounting Concepts No. 7 provides general principles governing the use of present value, but does not address recognition issues or when fair value should be based on present value.

Question 4

An ordinary annuity is if the cash flows occur on the first day of each period.

Accepted Answer

An ordinary annuity involves cash flows occurring at the end of each period, not the beginning.

Question 5

The formula to calculate a present value of a deferred annuity is: PV_deferred = C x (Converted Factor for Present Value of Deferred Annuity of 1)

Accepted Answer

This is the correct formula to calculate the present value of a deferred annuity, where PV_deferred represents the present value of a deferred annuity, C represents the periodic payment or annuity amount, and the Converted Factor for Present Value of Deferred Annuity of 1 is a factor specific to the annuity's terms and conditions.

Question 6

The formula for the future value of an ordinary annuity of any amount is: $$F V _ { o } = C \times \left[ \frac { ( 1 + n ) ^ { i } - 1 } { i } \right]$$

Accepted Answer

The formula for the future value of an ordinary annuity is: $$FV_o = C \times \left[ \frac{(1 + i)^n - 1}{i} \right]$$, where $C$ is the cash flow per period, $i$ is the interest rate per period, and $n$ is the number of periods. The formula provided incorrectly swaps $n$ and $i$.

Question 7

An annuity is a series of equal cash flows occurring at irregular intervals with interest compounded at a specific rate.

Accepted Answer

An annuity is a series of equal cash flows occurring at regular intervals with interest compounded at a specific rate.

Question 8

Present value measurements involve estimation of future cash flows, the timing, amount, and the risk of those cash flows which create a relevant accounting measurement.

Accepted Answer

Present value measurements require the estimation of future cash flows, including their timing, amount, and risk, in order to calculate a relevant accounting measurement.

Question 9

The future value of an ordinary annuity is determined immediately after the last cash flow in the series occurs.

Accepted Answer

The future value of an ordinary annuity calculation involves assuming that each cash flow occurs at the end of each period, and therefore the calculation is determined immediately after the last cash flow in the series occurs.

Question 10

The future value of an annuity due is determined one period after the first cash flow in the series.

Accepted Answer

The future value of an annuity due is determined at the end of the annuity period, not one period after the first cash flow. An annuity due means payments are made at the beginning of each period.

Question 11

To calculate the present value of four annual installments of $1,000 at an 8% interest rate beginning on January 1, 2013 and payments due on December 31 of each year, one would use the present value of an ordinary annuity table.

Accepted Answer

The present value of an ordinary annuity table is used to calculate the present value of a series of equal payments made at the end of each period, which is exactly what is described in the question. Therefore, the statement is true.

Question 12

The future value of a single sum is the original principal amount plus the compound interest stated as of a specific future date.

Accepted Answer

This is the correct definition of future value.

Question 13

The formula to compute the future value of a single sum is: FV = PV x (1 - i)ⁿ.

Accepted Answer

The formula to compute the future value of a single sum is FV = PV x (1 + i)^n, where PV is the present value, i is the interest rate, and n is the number of periods. The formula provided in the question is incorrect.

Question 14

Compounding is the conversion of future cash flow amounts to their present value.

Accepted Answer

Compounding is the process of calculating the future value of a current amount, not the conversion of future cash flow amounts to their present value. Present value is calculated through discounting.

Question 15

The interest that accrues on both the principal and the past unpaid accrued interest is called compound interest.

Accepted Answer

Compound interest refers to the interest that is calculated not only on the initial principal amount, but also on the accumulated interest from previous periods. As a result, the amount of interest earned increases exponentially over time.

Question 16

The present value of an annuity due is determined on the date of the last cash flow in the series.

Accepted Answer

The present value of an annuity due is determined on the date of the first cash flow in the series, not the last.

Question 17

The present value of a deferred annuity is determined on today's date, because the annuity payments begin some period after today's date.

Accepted Answer

The present value of a deferred annuity is always determined on today's date, even though the annuity payments begin at a later date. This is because the present value takes into account the time value of money and discounts the future payments back to their current value.

Question 18

The formula to calculate the present value of an ordinary annuity is: $$p V o = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n } } } { i } \right]$$

Accepted Answer

The formula provided is the correct mathematical expression for calculating the present value of an ordinary annuity, where $ C $ is the cash flow per period, $ i $ is the interest rate per period, and $ n $ is the number of periods.

Question 19

To calculate the present value of an annuity due the formula is: $$P V _ { D } = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n + 1 } } } { i } + 1 \right]$$

Accepted Answer

The answer of To calculate the present value of an...

Question 20

Discounting is the process of converting a future cash flow to a present value.

Accepted Answer

This definition of discounting is correct, making the statement true.

Quiz 23: Time Value of Money Module

The present value of an annuity is the present value of a series of equal cash flows that occur in the future.

The formula to compute the present value of a dollar is PV = FV x . $\frac { 1 } { ( 1 + i ) ^ { n } }$

An ordinary annuity is if the cash flows occur on the first day of each period.

The formula to calculate a present value of a deferred annuity is: PV_deferred = C x (Converted Factor for Present Value of Deferred Annuity of 1)

The formula for the future value of an ordinary annuity of any amount is: $F V _ { o } = C \times \left[ \frac { ( 1 + n ) ^ { i } - 1 } { i } \right]$

An annuity is a series of equal cash flows occurring at irregular intervals with interest compounded at a specific rate.

Present value measurements involve estimation of future cash flows, the timing, amount, and the risk of those cash flows which create a relevant accounting measurement.

The future value of an ordinary annuity is determined immediately after the last cash flow in the series occurs.

The future value of an annuity due is determined one period after the first cash flow in the series.

To calculate the present value of four annual installments of $1,000 at an 8% interest rate beginning on January 1, 2013 and payments due on December 31 of each year, one would use the present value of an ordinary annuity table.

The future value of a single sum is the original principal amount plus the compound interest stated as of a specific future date.

The formula to compute the future value of a single sum is: FV = PV x (1 - i)ⁿ.

Compounding is the conversion of future cash flow amounts to their present value.

The interest that accrues on both the principal and the past unpaid accrued interest is called compound interest.

The present value of an annuity due is determined on the date of the last cash flow in the series.

The present value of a deferred annuity is determined on today's date, because the annuity payments begin some period after today's date.

The formula to calculate the present value of an ordinary annuity is: $p V o = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n } } } { i } \right]$

To calculate the present value of an annuity due the formula is: $P V _ { D } = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n + 1 } } } { i } + 1 \right]$

Discounting is the process of converting a future cash flow to a present value.

Quiz 23: Time Value of Money Module

The present value of an annuity is the present value of a series of equal cash flows that occur in the future.

The formula to compute the present value of a dollar is PV = FV x . 1(1+i)n\frac { 1 } { ( 1 + i ) ^ { n } }(1+i)n1​

An ordinary annuity is if the cash flows occur on the first day of each period.

The formula to calculate a present value of a deferred annuity is: PVdeferred = C x (Converted Factor for Present Value of Deferred Annuity of 1)

The formula for the future value of an ordinary annuity of any amount is: FVo=C×[(1+n)i−1i]F V _ { o } = C \times \left[ \frac { ( 1 + n ) ^ { i } - 1 } { i } \right]FVo​=C×[i(1+n)i−1​]

An annuity is a series of equal cash flows occurring at irregular intervals with interest compounded at a specific rate.

Present value measurements involve estimation of future cash flows, the timing, amount, and the risk of those cash flows which create a relevant accounting measurement.

The future value of an ordinary annuity is determined immediately after the last cash flow in the series occurs.

The future value of an annuity due is determined one period after the first cash flow in the series.

To calculate the present value of four annual installments of $1,000 at an 8% interest rate beginning on January 1, 2013 and payments due on December 31 of each year, one would use the present value of an ordinary annuity table.

The future value of a single sum is the original principal amount plus the compound interest stated as of a specific future date.

The formula to compute the future value of a single sum is: FV = PV x (1 - i)n.

Compounding is the conversion of future cash flow amounts to their present value.

The interest that accrues on both the principal and the past unpaid accrued interest is called compound interest.

The present value of an annuity due is determined on the date of the last cash flow in the series.

The present value of a deferred annuity is determined on today's date, because the annuity payments begin some period after today's date.

The formula to calculate the present value of an ordinary annuity is: pVo=C×[1−1(1+i)ni]p V o = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n } } } { i } \right]pVo=C×[i1−(1+i)n1​​]

To calculate the present value of an annuity due the formula is: PVD=C×[1−1(1+i)n+1i+1]P V _ { D } = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n + 1 } } } { i } + 1 \right]PVD​=C×[i1−(1+i)n+11​​+1]

Discounting is the process of converting a future cash flow to a present value.

The formula to compute the present value of a dollar is PV = FV x . $\frac { 1 } { ( 1 + i ) ^ { n } }$

The formula to calculate a present value of a deferred annuity is: PV_deferred = C x (Converted Factor for Present Value of Deferred Annuity of 1)

The formula for the future value of an ordinary annuity of any amount is: $F V _ { o } = C \times \left[ \frac { ( 1 + n ) ^ { i } - 1 } { i } \right]$

The formula to compute the future value of a single sum is: FV = PV x (1 - i)ⁿ.

The formula to calculate the present value of an ordinary annuity is: $p V o = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n } } } { i } \right]$

To calculate the present value of an annuity due the formula is: $P V _ { D } = C \times \left[ \frac { 1 - \frac { 1 } { ( 1 + i ) ^ { n + 1 } } } { i } + 1 \right]$