978-1337276337 Test Bank Chapter 9 Part 3

Chapter 9

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101. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

The total amount of interest compounded quarterly on a $2,000 note payable for one year at 8% is

a. $164.86.

b. $240.00.

c. $40.00.

d. None of these are correct.

102. If you must calculate the present value of an amount at 12% compounded quarterly for two years, then the interest

factor used in the calculation is

a. 3% for eight periods.

b. 12% for eight periods.

c. the interest factor for 12% for two periods divided by 4.

d. None of these are correct

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103. If a company wishes to accumulate $500,000 in 20 years at 5% by making equal yearly deposits into an account,

calculation of the deposits is an application of the

a. future value of a single amount.

b. present value of a single amount.

c. future value of an annuity.

d. present value of an annuity.

104. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

The future value of $6,000 at 12% compounded quarterly for five years is

a. $6,954.

b. $9,600.

c. $10,572.

d. $10,836.

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105. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

The future value of equal semiannual payments of $500 at 8% compounded semiannually for four years is

a. $868.

b. $2,000.

c. $4,607.

d. $9,320.

106. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

The present value of $7,000 to be received in seven years at 7% compounded annually is

a. $3,430.

b. $6,657.

c. $4,361.

d. $7,000.

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107. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

How much would have to be deposited in a savings account earning 6%, so that equal annual withdrawals of $200 can be

made at the end of each of ten years? The balance at the end of the last year would be zero.

a. $528

b. $1,472

c. $2,000

d. $2,636

108. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

Kingston inherited $140,000 from an aunt. If Kingston decides not to spend his inheritance but to leave the money in his

savings account until he retires in 15 years, how much money will he have assuming an annual interest rate of 8%,

compounded semiannually?

a. $308,000

b. $509,880

c. $454,020

d. $7,851,900

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109. If the interest factor used to calculate the future value of $1 at 6% for 5 periods is 1.338, then the present value of $1

at 6% for 5 periods is

a. 1.338 × 1.338.

b. 1/1.338.

c. 1/(1.338 × 1.338).

d. 0.338.

110. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

Pablos wants to save some money so that he can make a down payment of $3,000 on a car when he graduates from

college four years from now. If he opens a savings account and earns 3% on his money, compounded annually, how much

will he have to invest now?

a. $2,520

b. $2,664

c. $2,910

d. $3,000

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111. Using the future value table, a student found that the future value amount of $1 for five years at an annual interest

rate of 10% is 1.611. The student also observed that the future value of $1 for five years at 10% compounded

semiannually is 1.629. This means that

a. the more often the compounding, the higher the future value.

b. the student was looking in the wrong column; the second amount should be 1.611/2.

c. there was an error in the table.

d. when interest is compounded semiannually, more money must be deposited to have a desired ending balance.

112. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

David, a high school math teacher, wants to set up an IRA account into which he will deposit $2,000 per year. He plans to

teach for 20 more years and then retire. If the interest on his account is 7% compounded annually, how much will be in his

account when he retires?

a. $4,800

b. $21,118

c. $74,458

d. $81,990

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113. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

Winston wins the lottery. He wins $20,000 per year to be paid to him for ten years. The state offers him the choice of a

cash settlement now instead of the annual payments for ten years. If the interest rate is 6%, what is the amount the state

will offer for a settlement today?

a. $147,200

b. $154,440

c. $175,000

d. $200,000

114. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

Cory and Ginger want to buy an airplane. They find one that will cost $200,000. They must pay 10% down and can get

the balance financed with a ten year loan at 7% interest and annual payments. What is their annual payment?

a. $26,826

b. $25,626

c. $24,457

d. $19,260

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115. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

Josh and Sara want to buy a house in four years. If the house will cost $180,000, how much must they deposit at the end

of every year for the next four years at 5% compounded annually in order to buy the house?

a. $32,040

b. $36,990

c. $41,763

d. $45,000

116. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

The table factor for the future value of an annuity for four annual deposits at 8% is

a. the same as for the future value of $1 multiplied by 4.

b. the reciprocal of the future value of $1 factor for n = 4 and 8%.

c. the cumulative total of the future value of $1 factors for four deposits at 8%.

d. the same as using the future value of $1 factors at 8% for 3, 2, 1, and 0 periods.

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117. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

Denise wants to help pay for her niece’s college tuition. Her niece will begin college in one year. How much would Denise

need to put into a savings account today at 6% so that her niece can withdraw $10,000 per year for four years and reduce

the account balance to zero at the end of the four years?

a. $31,680

b. $34,650

c. $37,600

d. $37,720

118. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

A company will have to pay a $50,000 liability in four years. How much must be deposited now into a bank account

earning 8% compounded semiannually to fully fund the future payment?

a. $34,000

b. $35,500

c. $36,523

d. $36,550

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119. To calculate the future value of an amount that is invested at 12%, compounded quarterly, at the end of three years,

the interest factor used would be

a. 1% for 12 periods.

b. 3% for four periods.

c. 3% for 12 periods.

d. 12% for three periods.

120. For a given single sum invested at 8% for four years, how will the future value be affected if the compounding period

is changed from quarterly to annually?

a. The future value will decrease.

b. The future value will increase.

c. The future value will stay the same.

d. There is not enough information to determine the impact.

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121. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

If Shidan has $5,000 to invest and wants to have $10,000 at the end of nine years, what compounded interest rate must she

get on her money (assume annual compounding)?

a. 5%

b. 6%

c. 7%

d. 8%

122. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

If Vito has $5,000 per year to invest for ten years and wants to accumulate $87,745 at the end of that time, he must find an

investment that is earning at a rate of

a. 15%.

b. 12%.

c. 11%.

d. 6%.

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123. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

Mackie’s individual retirement account (IRA) currently has a balance of $100,000 and is earning 6%. Beginning one year

from today, what equal annual amounts can be withdrawn from the IRA for ten years so that the balance after the tenth

withdrawal is zero?

a. $10,000

b. $12,950

c. $13,587

d. $14,237

124. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

Barton Company has just purchased a machine with a cost of $100,000 and signed a note agreeing to pay the

manufacturer equal annual amounts of $17,400. If the current rate of interest is 8%, how many equal annual payments will

be made?

a. 6

b. 8

c. 10

d. 12

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125. The solution to this problem requires time value of money calculations. Reference to Tables 9-1 through 9-4 in the

text is necessary to complete the calculations.

Approximately how many years will it take for a sum invested at 8% with annual compounding to quadruple?

a. 9 years

b. 17 years

c. 18 years

d. 81 years

126. You are interested in accumulating $10,000 so that you can take a cruise in three years. If you try to solve for the

amount that you need to invest each year, earning 6% interest compounded annually, the $10,000 represents

a. the amount to invest.

b. an annuity.

c. a present value.

d. a future value.

127. All of the following statements about current liabilities are true except

a. current liabilities are obligations that will be satisfied within one year.

b. current liabilities are normally recorded at face value.

c. the Current Liabilities section never contains any portion of long-term liabilities.

d. current liabilities finance the working capital of the company.

128. If your bank gives you a $2,000 loan at 8% per year, but deducts the interest in advance, is 8% the “real” rate of

interest that you will pay?

a. Yes.

b. No. The interest rate is actually lower than 8%.

c. No. The interest rate is actually higher than 8%.

Chapter 9

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d. There is not enough information to answer this question accurately.

129. What is the correct classification of the account Discount on Notes Payable?

a. An asset

b. An expense

c. A revenue

d. A contra liability

130. What type of interest is calculated on the balance of the principal only?

a. Equivalent interest

b. Compound interest

c. Future interest

d. Simple interest

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135. At December 31, 2017, an amount due on December 31, 2018, would be classified as a(n) __________ liability.

136. __________ include any amount that has been incurred due to the passage of time, but not paid as of the balance

sheet date.

137. When a bank deducts the interest on a note in advance, the note has been __________.

138. Almost all current liabilities appear within the __________ Activities category of the statement of cash flows.

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139. Using the indirect method, an increase in accounts payable would be shown as a(n) __________ in the __________

Activities section of the statement of cash flows.

140. An obligation that involves an existing condition for which the outcome is not known with certainty and depends on

some event that will occur in the future is call a(n) __________.

141. The interest earned on the principal amount only is referred to as __________.

142. The issue price of a bond is based on the __________ of the cash flows that the bond will produce.

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143. If a 12% interest rate is compounded quarterly for three years, then there would be __________ compounding

periods.

144. The __________ of a single sum represents the value today of a single amount to be received or paid at a future time.

145. If the present and future values are known along with the number of periods, then the __________ can be

determined.

146. If the market value that you paid for a car is known and the annual payment and number of payments is known, the

table factor to help find the interest rate can be calculated by dividing __________.