TVM MODULE: TIME VALUE OF MONEY MODULE
1. One type of compensation provided by the time value of money is compensation for expected consumption.
a.
True
b.
False
False
1
Easy
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Bloom’s: Remembering
2. One type of compensation provided by the time value of money is compensation for risk.
a.
True
b.
False
True
1
Easy
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3. Compounding is the conversion of future cash flow amounts to their present value.
a.
True
b.
False
False
1
Easy
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TVM Module: Time Value of Money Module
4. Discounting is the conversion of future cash flow amounts to their present value.
a.
True
b.
False
True
1
Easy
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5. The interest that accrues on both the principal and the past unpaid accrued interest is called compound interest.
a.
True
b.
False
True
1
Easy
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6. The future value grows more quickly when interest is compounded monthly than when interest is compounded
annually.
a.
True
b.
False
True
1
Easy
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TVM Module: Time Value of Money Module
7. The formula to compute the future value of a single sum is:
a.
True
b.
False
False
1
Easy
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8. The formula to compute the future value of a single sum is
a.
True
b.
False
False
1
Easy
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9. The future value of an amount depends on two variables: the interest rate and the number of payments
a.
True
b.
False
False
1
Easy
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TVM Module: Time Value of Money Module
10. The present value of a future amount depends on two variables: the interest rate and the number of periods.
a.
True
b.
False
True
1
Easy
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11. The formula to compute the present value of a dollar is
a.
True
b.
False
True
1
Easy
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12. The present value of an amount decreases as the discount rate increases.
a.
True
b.
False
True
1
Easy
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TVM Module: Time Value of Money Module
13. The present value factors for any discount rate increase as the number of periods increases.
a.
True
b.
False
False
1
Easy
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14. To determine an unstated interest rate, divide the future amount by the present value then divide by the number of
periods.
a.
True
b.
False
False
1
Easy
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15. An annuity is the same amount at the same time every period
a.
True
b.
False
True
1
Easy
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TVM Module: Time Value of Money Module
16. An ordinary annuity is if the cash flows occur on the first day of each period.
a.
True
b.
False
False
1
Easy
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17. An annuity due is an annuity for which the cash flows occur on the first day of each period.
a.
True
b.
False
True
1
Easy
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18. The future value of an ordinary annuity is determined immediately after the last cash flow in the series occurs.
a.
True
b.
False
True
1
Easy
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TVM Module: Time Value of Money Module
19. The formula for the future value of an ordinary annuity of any amount is:
a.
True
b.
False
False
1
Challenging
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20. The future value of an ordinary annuity is higher if the discount rate is higher.
a.
True
b.
False
True
1
Easy
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21. The future value of an annuity due is determined one period after the first cash flow in the series.
a.
True
b.
False
False
1
Easy
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TVM Module: Time Value of Money Module
22. The future value of an annuity due is lower if the discount rate is higher.
a.
True
b.
False
False
1
Easy
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23. The present value of an annuity is the present value of a series of equal cash flows that occur in the future.
a.
True
b.
False
True
1
Easy
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24. To calculate the present value of four annual installments of $1,000 at an 8% interest rate beginning on January 1,
2016 and payments due on December 31 of each year, one would use the present value of an ordinary annuity table.
a.
True
b.
False
True
1
Moderate
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TVM Module: Time Value of Money Module
25. The formula to calculate the present value of an ordinary annuity is:
a.
True
b.
False
True
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26. The present value of an annuity due is determined on the date of the last cash flow in the series.
a.
True
b.
False
1
Easy
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TVM Module: Time Value of Money Module
27. To calculate the present value of an annuity due the formula is:
a.
True
b.
False
False
1
Challenging
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28. The present value of a deferred annuity is determined on today’s date, because the annuity payments begin some
period after today’s date.
a.
True
b.
False
True
1
Easy
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29. The formula to calculate a present value of a deferred annuity is:
PVdeferred = C × (Converted Factor for Present Value of Deferred Annuity of 1)
a.
True
b.
False
True
Easy
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TVM Module: Time Value of Money Module
30. The amount of future cash flows is an accounting measurement that is considered relevant for decisions made by
financial statement users.
a.
True
b.
False
True
1
Easy
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31. FASB’s Statement of Financial Accounting Concepts No. 7 specifies when fair value should be based on present
value.
a.
True
b.
False
False
1
Moderate
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32. FASB’s Statement of Financial Accounting Concepts No. 7 provides general principles governing the use of present
value and the objectives of present value accounting measurements.
a.
True
b.
False
True
1
Moderate
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TVM Module: Time Value of Money Module
33. To compare the value of amounts received at different times in the future, dollar amounts
a.
may be restated to their present value through discounting or restated to their future value by compounding.
b.
must be converted to a single sum.
c.
must be restated to their future value by adding the compound interest to date.
d.
must be restated to their present value by removing the interest from the amount to be received in the future.
a
1
Moderate
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34. The method of converting a future dollar amount into its present dollar value by removing the time value of money is
called
a.
b.
c.
d.
a
1
Easy
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35. Interest calculated on the original principal regardless of the number of time periods that have passed or the amount of
interest that has been paid or accrued in the past is
a.
compound interest.
b.
simple interest.
c.
present value of future cash flows.
d.
future value of a single sum.
b
1
Easy
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TVM Module: Time Value of Money Module
36. Compound interest is
a.
calculated by multiplying the principal times the rate times the period of time.
b.
interest on the original principal plus any past unpaid accrued interest to date.
c.
interest on the original principal paid or received.
d.
interest on any past unpaid interest accrued to date.
b
1
Easy
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37. Simple interest on a $25,000, 8%, 18-month note is
a.
$22,000.
b.
$23,000.
c.
$3,000.
d.
$2,000.
c
1
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38. Simple interest on a $1,250,000, 9%, 15-month note is
a.
$ 90,000.
b.
$112,500.
c.
$140,625.
d.
$168,750.
c
1
Easy
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TVM Module: Time Value of Money Module
39. Interest compounded monthly on a $10,000 principal amount at 18% for two years is
a.
$1,800.
b.
$3,600.
c.
$3,924.
d.
$4,295.
d
1
Moderate
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40. Interest compounded quarterly on a $100,000 principal amount at 12% for one year is
a.
$11,151.
b.
$12,000.
c.
$12,551.
d.
$12,683.
b
1
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TVM Module: Time Value of Money Module
41. What is the formula for the future value of a single amount at compound interest?
a.
b.
c.
d.
b
1
Easy
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42. The future value of $7,000 deposited today and compounded semiannually at an 9% annual interest rate for four years
is
a.
$9,955.
b.
$9,520.
c.
$8,100.
d.
$7,920.
a
1
Moderate
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TVM Module: Time Value of Money Module
43. Maxine has $1,000 to invest today. How much will her money be worth in 15 years if she earns 9% compounded
semiannually on her money?
a.
$3,745
b.
$13,268
c.
$3,642
d.
$1,935
a
1
Easy
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44. The future value of $50,000 deposited today and compounded quarterly at an 8% annual interest rate for seven years is
a.
$57,434.
b.
$87,051.
c.
$85,691.
d.
$78,000.
b
1
Easy
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45. The future value of $7,000 deposited today and compounded quarterly at a 16% annual interest rate for five years is
a.
$14,724.
b.
$14,702.
c.
$8,517.
d.
$15,338.
d
1
Easy
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TVM Module: Time Value of Money Module
46. Mildred desires to have $7,049 on deposit five years from today. If she has $4,000 to deposit, what rate of interest,
compounded annually, must be obtained to accumulate the desired $7,049 in five years?
a.
12%
b.
10%
c.
9%
d.
8%
a
1
Moderate
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47. If $100,000 is invested on December 31, 2016 to earn compound interest semiannually, and if the future value on
December 31, 2022, is $225,219 what is the semiannual interest rate on the investment?
a.
7%
b.
6%
c.
5%
d.
8%
a
1
Moderate
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TVM Module: Time Value of Money Module
48. What is the formula for the present value of a single sum at compound interest?
a.
b.
FV × (1 + i)n
c.
d.
1
Easy
ACCT.WHAL.TVM.3 – LO: TVM.2
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c
49. The present value of $500,000 received at the end of five years discounted at 10% is
a.
$805,255.
b.
$310,461.
c.
$306,957.
d.
none of these
b
1
Moderate
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TVM Module: Time Value of Money Module
50. Marco needs $175,000 six years from today. How much should Marco deposit today into an investment account that
provides a 12% annual return in order to accomplish his goals?
a.
$89,523
b.
$88,660
c.
$85,487
d.
$62,500
b
1
Easy
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51. On April 1, 2016, Meyers Company purchased a bulldozer. Payment, totaling $70,000, is not due until April 1, 2018.
Assuming interest at a 12% annual rate, Meyers should debit Machinery on April 1, 2016, in the amount of
a.
$70,000.
b.
$62,500.
c.
$61,600.
d.
$55,804.
d
1
Easy
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52. Margaret will receive an insurance settlement of $3,000,000 in five years. Randall is willing to give her a lump sum
today in return for the payment in five years. If current interest rates are 12% per year, how much will Margaret
receive today?
a.
$960,637
b.
$1,702,281
c.
$1,116,790
d.
$1,800,000
b
1
Moderate
United States – BUSPORG: Analytic
TVM Module: Time Value of Money Module
53. Tessa won the lottery for $2,500,000 but due to a change in state laws she will not be able to collect it for three
years. Ralph is willing to give her a lump sum today in return for the payment in three years. If current interest rates
are 14% per year, how much will Tessa receive today?
a.
$1,687,430
b.
$5,804,080
c.
$2,500,000
d.
$3,703,860
a
1
Moderate
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54. Each of the following compound interest factors has the same number of periods (n) at the same interest rate (i).
Which one is the table factor for the present value of a single sum?
a.
1.500730
b.
7.153291
c.
0.666342
d.
4.766540
c
1
Easy
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55. Bruno deposited $7,500 into an investment account and seven years later, the balance in the account was $10,910.
What is the rate of return on this investment if interest is compounded annually?
a.
45.5%
b.
6.5%
c.
6.0%
d.
5.5%
d
1
Easy
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