Fina ncial Accounting, 5e (Spiceland)
Appendix C: Time Value of Money
1) The value of $1 today is worth more than $1 one year from now.
2) The time value of money is a concept, which means that the value of $1 increases over time.
3) Simple interest is interest earned on the initial investment only.
4) If you put $500 into a savings account that pays simple interest of 8% per year and then
withdraw the money two years later, you will earn interest of $80.
5) If you put $600 into a savings account that pays simple interest of 10% per year and then
withdraw the money two years later, you will earn interest of $126.
6) Compound interest is interest you earn on the initial investment and on previous interest.
7) If you put $200 into a savings account that pays annual compound interest of 8% per year and
then withdraw the money two years later, you will earn interest of $32.
8) If you put $300 into a savings account that pays annual compound interest of 10% per year and
then withdraw the money two years later, you will earn interest of $63.
9) Future value is how much an amount today will grow to be in the future.
10) The more frequent the rate of compounding, the more interest that is earned on previous
interest, resulting in a higher future value.
11) Present value indicates how much a present amount of money will grow to in the future.
12) The discount rate is the rate at which someone is willing to give up current dollars for future
dollars.
13) The future value of $1,000 invested today for three years that earns 10% compounded annually
is greater than the future value of a $500 annuity with the same interest rate over the same period.
14) The present value of $1,000 received three years from today with a discount rate of 10% is less
than the present value of a $500 annuity with the same discount rate over the same period.
15) An annuity includes cash payments of equal amounts over time periods of equal length.
16) The concept that interest causes the value of money received today to be greater than the value
of that same amount of money received in the future is referred to as the:
A) Monetary unit assumption.
B) Historical cost principle.
C) Time value of money.
D) Matching principle.
17) Simple interest is computed as the:
A) Interest rate times the difference between the initial investment and any previous interest.
B) Interest rate times the initial investment only.
C) Interest rate times any previous interest.
D) Interest rate times the sum of the initial investment plus any previous interest.
18) Which of the following is a correct statement?
A) The future value table should be used when determining how much an amount today will grow
to be in the future.
B) The present value table should be used when determining how much an amount in the future is
worth today.
C) The number of compounding periods and interest rate per compounding period are needed to
use the future value table and the present value table.
D) All of the other answer choices are correct.
19) Mattison is trying to decide how much an investment of $10,000 today will grow to be in the
future. Which of the following will she not need to help calculate that amount?
A) Future value table.
B) Present value table.
C) Number of compounding periods.
D) Interest rate.
20) Anna Beth would like to save $10,000 by the time she finishes college and is trying to calculate
how much she should invest today. Which of the following will she not need to help calculate that
amount?
A) Future value table.
B) Present value table.
C) Number of compounding periods.
D) Interest rate.
21) The value today of receiving an amount in the future is referred to as 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.
22) The value that an amount today will grow to in the future is referred to as 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.
23) Reba wishes to know how much would be in her savings account in five years if she deposits a
given sum in an account that earns 6% interest. She should use a table for the:
A) Future value of $1.
B) Present value of $1.
C) Future value of an annuity of $1.
D) Present value of an annuity of $1.
24) LeAnn wishes to know how much she should set aside now at 7% interest in order to
accumulate a sum of $5,000 in four years. She should use a table for the:
A) Future value of $1.
B) Present value of $1.
C) Future value of an annuity of $1.
D) Present value of an annuity of $1.
25) Samuel is trying to determine what it’s worth today to receive $10,000 in four years at a 7%
interest rate. He should use a table for the:
A) Future value of $1.
B) Present value of $1.
C) Future value of an annuity of $1.
D) Present value of an annuity of $1.
26) Below are excerpts from interest tables for 8% interest.
1
2
3
4
1
1.0000
0.92593
1.08000
0.92593
2
2.0800
0.85734
1.16640
1.78326
3
3.2464
0.79383
1.25971
2.57710
4
4.5061
0.73503
1.36049
3.31213
Column 2 is an interest table for the:
A) Future value of $1.
B) Present value of $1.
C) Future value of an annuity of $1.
D) Present value of an annuity of $1.
27) Below are excerpts from interest tables for 8% interest.
1
2
3
4
1
1.0000
0.92593
1.08000
0.92593
2
2.0800
0.85734
1.16640
1.78326
3
3.2464
0.79383
1.25971
2.57710
4
4.5061
0.73503
1.36049
3.31213
Column 3 is an interest table for the:
A) Future value of $1.
B) Present value of $1.
C) Future value of an annuity of $1.
D) Present value of an annuity of $1.
28) How much will $25,000 grow to in seven years, assuming an interest rate of 12% compounded
annually? (Use appropriate factor(s) from Table 1, FV of $1; Table 2, PV of $1; Table 3, FVA
of $1; and Table 4, PVA of $1 contained within a separate file.)
A) $55,267.
B) $46,000.
C) $61,899.
D) $52,344.
29) How much will $8,000 grow to in five years, assuming an interest rate of 8% compounded
quarterly? (Use appropriate factor(s) from Table 1, FV of $1; Table 2, PV of $1; Table 3, FVA
of $1; and Table 4, PVA of $1 contained within a separate file.)
A) $10,989.
B) $11,755.
C) $11,888.
D) $12,013.
30) What is the value today of receiving $2,500 at the end of three years, assuming an interest rate
of 9% compounded annually? (Use appropriate factor(s) from Table 1, FV of $1; Table 2, PV
of $1; Table 3, FVA of $1; and Table 4, PVA of $1 contained within a separate file.)
A) $1,984.
B) $1,930.
C) $2,104.
D) $3,238.
31) What is the value today of receiving $5,000 at the end of six years, assuming an interest rate of
8% compounded semiannually? (Use appropriate factor(s) from Table 1, FV of $1; Table 2,
PV of $1; Table 3, FVA of $1; and Table 4, PVA of $1 contained within a separate file.)
A) $3,151.
B) $3,203.
C) $3,428.
D) $3,123.
32) Davenport Inc. offers a new employee two options. First, the employee can receive a one-time
signing bonus at the date of employment. Second, the employee can take $30,000 at the date of
employment and another $50,000 two years later. Assuming the employee’s time value of money
is 8% annually, what single payment in the first option would be equal to the total of the payments
in the second option? (Use appropriate factor(s) from Table 1, FV of $1; Table 2, PV of $1;
Table 3, FVA of $1; and Table 4, PVA of $1 contained within a separate file.)
A) $60,000.
B) $62,867.
C) $72,867.
D) $80,000.
33) Today, Thomas deposited $100,000 in a three-year, 12% CD that compounds quarterly. What
is the maturity value of the CD? (Use appropriate factor(s) from Table 1, FV of $1; Table 2, PV
of $1; Table 3, FVA of $1; and Table 4, PVA of $1 contained within a separate file.)
A) $109,270.
B) $119,410.
C) $142,576.
D) $309,090.
34) Today, King deposited $500,000 in an investment account that is expected to return 8%,
compounded semiannually. What amount is expected to be in the account in four years? ((Use
appropriate factor(s) from Table 1, FV of $1; Table 2, PV of $1; Table 3, FVA of $1; and
Table 4, PVA of $1 contained within a separate file.)
A) $680,245.
B) $687,129.
C) $684,285.
D) $668,352.
35) Carol wants to invest money in a 6% CD that compounds semiannually. Carol would like the
account to have a balance of $50,000 five years from now. How much must Carol deposit to
accomplish her goal? (Use appropriate factor(s) from Table 1, FV of $1; Table 2, PV of $1;
Table 3, FVA of $1; and Table 4, PVA of $1 contained within a separate file.)
A) $35,069.
B) $43,131.
C) $37,205.
D) $35,000.
36) Shane wants to invest money in a 6% CD that compounds semiannually. Shane would like the
account to have a balance of $100,000 four years from now. How much must Shane deposit to
accomplish his goal? (Use appropriate factor(s) from Table 1, FV of $1; Table 2, PV of $1;
Table 3, FVA of $1; and Table 4, PVA of $1 contained within a separate file.)
A) $88,848.
B) $78,941.
C) $25,336.
D) $22,510.
37) Bill wants to give Maria a $500,000 gift in seven years. If money is worth 6% compounded
semiannually, what is Maria’s gift worth today? (Use appropriate factor(s) from Table 1, FV of
$1; Table 2, PV of $1; Table 3, FVA of $1; and Table 4, PVA of $1 contained within a separate
file.)
A) $66,110.
B) $81,310.
C) $406,550.
D) $330,560.
38) At the end of each of the next four years, a new machine is expected to generate net cash flows
of $8,000, $12,000, $10,000, and $15,000, respectively. What are the cash flows worth today if a
3% interest rate properly reflects the time value of money in this situation? (Use appropriate
factor(s) from Table 1, FV of $1; Table 2, PV of $1; Table 3, FVA of $1; and Table 4, PVA of
$1 contained within a separate file.)
A) $41,557.
B) $47,700.
C) $32,403.
D) $38,108.
39) At the end of each of the next five years, an investment is expected to generate net cash flows
of $5,000, $6,000, $7,000, $5,000, and $4,000, respectively. What are the cash flows worth today
if a 6% interest rate properly reflects the time value of money in this situation? (Use appropriate
factor(s) from Table 1, FV of $1; Table 2, PV of $1; Table 3, FVA of $1; and Table 4, PVA of
$1 contained within a separate file.)
A) $21,781.
B) $22,884.
C) $22,560.
D) $23,142.
40) Monica wants to sell her share of an investment to Barney for $50,000 in three years. If money
is worth 6% compounded semiannually, what would Monica accept today? (Use appropriate
factor(s) from Table 1, FV of $1; Table 2, PV of $1; Table 3, FVA of $1; and Table 4, PVA of
$1 contained within a separate file.)
A) $8,375.
B) $41,874.
C) $11,941.
D) $41,000.
41) How much must be invested now at 9% interest to accumulate to $10,000 in five years? (Use
appropriate factor(s) from Table 1, FV of $1; Table 2, PV of $1; Table 3, FVA of $1; and
Table 4, PVA of $1 contained within a separate file.)
A) $9,176.
B) $6,499.
C) $5,500.
D) $5,960.
42) How much must be invested now at 6% interest to accumulate to $50,000 in ten years? (Use
appropriate factor(s) from Table 1, FV of $1; Table 2, PV of $1; Table 3, FVA of $1; and
Table 4, PVA of $1 contained within a separate file.)
A) $29,937.
B) $22,366.
C) $28,224.
D) $27,920.
43) The value today of receiving a series of equal payments in the future is referred to as 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.
44) The value that a series of equal payments will grow to in the future is referred to as 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.
45) A series of equal periodic payments is referred to as:
A) The time value of money.
B) An annuity.
C) The future value.
D) Interest.
46) How much will $5,000 invested at the end of each year grow to in six years, assuming an
interest rate of 7% compounded annually? (Use appropriate factor(s) from Table 1, FV of $1;
Table 2, PV of $1; Table 3, FVA of $1; and Table 4, PVA of $1 contained within a separate
file.)
A) $35,766.
B) $26,813.
C) $23,833.
D) $7,504.
47) How much will $1,000 invested at the end of each year grow to in 20 years, assuming an
interest rate of 10% compounded annually? (Use appropriate factor(s) from Table 1, FV of $1;
Table 2, PV of $1; Table 3, FVA of $1; and Table 4, PVA of $1 contained within a separate
file.)
A) $6,728.
B) $8,514.
C) $83,159.
D) $57,275.
48) What is the value today of receiving $5,000 at the end of each year for the next 10 years,
assuming an interest rate of 12% compounded annually? (Use appropriate factor(s) from Table
1, FV of $1; Table 2, PV of $1; Table 3, FVA of $1; and Table 4, PVA of $1 contained within a
separate file.)
A) $87,744.
B) $28,251.
C) $50,000.
D) $15,529.
49) What is the value today of receiving $3,000 at the end of each year for the next three years,
assuming an interest rate of 3% compounded annually? (Use appropriate factor(s) from Table 1,
FV of $1; Table 2, PV of $1; Table 3, FVA of $1; and Table 4, PVA of $1 contained within a
separate file.)
A) $8,486.
B) $8,251.
C) $9,000.
D) $9,273.
50) What is the value today of receiving $5,000 at the end of each six-month period for the next
four years, assuming an interest rate of 4% compounded semi-annually?
A) $34,512.
B) $32,459.
C) $33,664.
D) $36,627.