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Appendix B Present and Future Values in Accounting
MULTIPLE CHOICE QUESTIONS
1) Interest is the borrower's payment to the owner of an asset, for its use.
A) True
B) False
2) From the perspective of an account holder, a savings account is a liability with interest.
A) True
B) False
3) An interest rate is also called a discount rate.
A) True
B) False
4) Present and future value computations enable companies to measure or estimate the interest
component of holding assets or liabilities over time.
A) True
B) False
5) The number of periods in a present value calculation may only be expressed in years.
A) True
B) False
6) The present value factor for determining the present value of $6,300 to be received three years
from today at 10% interest compounded semiannually is 0.7462. (PV of $1, FV of $1, PVA of $1,
and FVA of $1) (Use appropriate factor(s) from the tables provided.)
A) True
B) False
7) The present value of 1 formula is often useful when a borrowed asset must be repaid in full at a
later date and the borrower wants to know the worth of the asset at the future date.
A) True
B) False
8) In a present value or future value table, the length of one time period may be interpreted as one
year, one month, or any other length of time.
A) True
B) False
9) The present value of $2,000 to be received nine years from today at 8% interest compounded
annually is $1,000.40. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate
factor(s) from the tables provided.)
A) True
B) False
10) Sandra has a savings account that has accumulated to $50,000. She started with $28,225, and
earned interest at 10% compounded annually. It took her five years to accumulate the $50,000. (PV
of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables
provided.)
A) True
B) False
11) Future value can be found if the interest rate (i), the number of periods (n), and the present value
(p) are known.
A) True
B) False
12) The number of periods in a future value calculation may only be expressed in years.
A) True
B) False
13) The future value of $100 compounded semiannually for 3 years at 12% equals $140.49. (PV of $1,
FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
A) True
B) False
14) At an annual interest rate of 8% compounded annually, $5,300 will accumulate to a total of
$7,210.65 in 5 years. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s)
from the tables provided.)
A) True
B) False
15) An annuity is a series of equal payments occurring at equal intervals.
A) True
B) False
16) The present value of an annuity table can be used to determine the value today of a series of
payments to be received in the future.
A) True
B) False
17) A series of equal payments made or received at the end of each period is an ordinary annuity.
A) True
B) False
18) The present value of $5,000 per year for three years at 12% compounded annually is $12,009. (PV
of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables
provided.)
A) True
B) False
19) The present value of four $10,000 semiannual payments invested for 2 years at 12% compounded
semiannually is $43,746. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate
factor(s) from the tables provided.)
A) True
B) False
20) The present value of eight $5,000 semiannual payments invested for 4 years at 8% compounded
semiannually is $33,663.50. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate
factor(s) from the tables provided.)
A) True
B) False
21) With deposits of $5,000 at the end of each year, you will have accumulated $38,578 at the end of
the sixth year if the annual rate of interest is 10%. (PV of $1, FV of $1, PVA of $1, and FVA of
$1) (Use appropriate factor(s) from the tables provided.)
A) True
B) False
22) The future value of an ordinary annuity is the accumulated value of each annuity payment
excluding interest as of the date of the final payment.
A) True
B) False
23) Interest may be defined as:
A) A borrower's payment to the owner of an asset for its use.
B) The future value of a present amount.
C) Always an asset.
D) Always a liability.
E) Time.
24) If we want to know the value of present-day assets at a future date, we can use:
A) Annuity computations.
B) Future value computations.
C) Interest computations.
D) Earnings computations.
E) Present value computations.
25) Which interest rate column would you use from a present value or future value table for 8%
interest compounded quarterly?
A) 2% B) 12% C) 1% D) 6% E) 3%
26) Which column (i) and row (n) would you use from a present value or future value table for 8%
interest compounded quarterly for 6 years?
A) (i) = 2%, (n) = 24
B) (i) = 4%, (n) = 24
C) (i) = 4%, (n) = 12
D) (i) = 2%, (n) = 8
E) (i) = 8%, (n) = 6
27) A company is considering investing in a project that is expected to return $350,000 four years from
now. How much is the company willing to pay for this investment if the company requires a 12%
return? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the
tables provided.)
A) $55,606 B) $350,000 C) $222,425 D) $137,681 E) $265,764
28) Hao made a single investment which, after 5 years invested at 12% compounded semiannually, has
accumulated to $214,900. How much did Hao invest initially? (PV of $1, FV of $1, PVA of $1,
and FVA of $1) (Use appropriate factor(s) from the tables provided.)
A) $ 21,486 B) $214,896 C) $120,000 D) $160,584 E) $211,476
29) Molly borrows money by promising to make a single payment of $100,000 at the end of 5 years.
How much money is Molly able to borrow if the interest rate is 10%, compounded semiannually?
(PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables
provided.)
A) $61,390 B) $62,090 C) $38,550 D) $74,850 E) $78,350
30) Jason has a loan that requires a single payment of $4,000 at the end of 3 years. The loan's interest
rate is 6%, compounded semiannually. How much did Jason borrow? (PV of $1, FV of $1, PVA of
$1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
A) $4,000.00 B) $4,776.40 C) $3,358.40 D) $3,660.40 E) $3,350.00
31) Patricia wants to invest a sum of money today that will yield $10,000 at the end of 6 years.
Assuming she can earn an interest rate of 6% compounded annually, how much must she invest
today? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the
tables provided.)
A) $8,836 B) $8,306 C) $7,050 D) $6,000 E) $9,400
32) Paul wants to invest a sum of money today that will accumulate to $50,000 at the end of 4 years.
Assuming he can earn an interest rate of 8% compounded semiannually, how much must he invest
today? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the
tables provided.)
A) $36,750 B) $27,015 C) $31,414 D) $42,740 E) $36,535
33) Marshall has received an inheritance and wants to invest a sum of money today that will yield
$5,000 at the end of each of the next 10 years. Assuming he can earn an interest rate of 5%
compounded annually, how much of his inheritance must he invest today? (PV of $1, FV of $1,
PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
A) $45,125.00
B) $100,000.00
C) $47,500.00
D) $38,608.50
E) $50,000.00
34) Cody invests $1,800 per year from his summer wages at a 4% annual interest rate. He plans to take
a European vacation at the end of 4 years when he graduates from college. How much will he have
available to spend on his vacation? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use
appropriate factor(s) from the tables provided.)
A) $7,643.70 B) $7,200.00 C) $7,488.00 D) $6,912.00 E) $7,787.52
35) Jessica received a gift of $7,500 at the time of her high school graduation. She invests it in an
account that yields 10% compounded semiannually. What will the value of Jessica's investment be
at the end of 5 years? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s)
from the tables provided.)
A) $10,500.00
B) $8,250.00
C) $9,375.00
D) $11,250.00
E) $12,216.75
36) A company expects to invest $5,000 today at 12% annual interest and plans to receive $15,529 at
the end of the investment period. How many years will elapse before the company accumulates the
$15,529? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the
tables provided.)
A) 8 years
B) 0.322 years
C) 10 years
D) 3.1058 years
E) 5 years
