Tuesday, 1 November 2016

Financial Accounting 3rd Edition by Spiceland Test Bank

For This And Any Other test Bnaks, slotion Manuals, Quizess, Exams And Assignments Contact us At whiperhills@gmail.com



File: Appendix C Time Value of Money


True/False

[QUESTION]
1. The value of $1 today is worth more than $1 one year from now.
Answer: True
Learning Objective: 0C-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Time Value of Money

[QUESTION]
2. The time value of money is a concept, which means that the value of $1 increases over time.
Answer: False
Feedback: Time value of money means 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.
Learning Objective: 0C-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Time Value of Money

[QUESTION]
3. Simple interest is interest earned on the initial investment only.
Answer: True
Learning Objective: 0C-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Simple Interest

[QUESTION]
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.
Answer: True
Feedback: Simple interest = ($500 × 8%) + ($500 × 8%) = $80.
Learning Objective: 0C-01
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Calculation of Simple Interest

[QUESTION]
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.
Answer: False
Feedback: Simple interest = ($600 × 10%) + ($600 × 10%) = $120.
Learning Objective: 0C-01
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Calculation of Simple Interest

[QUESTION]
6. Compound interest is interest you earn on the initial investment and on previous interest.
Answer: True
Learning Objective: 0C-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Compound Interest

[QUESTION]
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.
Answer: False
Feedback: Compound interest = ($200 × 8%) + ($216 × 8%) = $33.28.
Learning Objective: 0C-01
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Calculation of Compound Interest

[QUESTION]
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.
Answer: True
Feedback: ($300 × 10%) + ($330 × 10%) = $63.
Learning Objective: 0C-01
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Calculation of Compound Interest

[QUESTION]
9. Future value is how much an amount today will grow to be in the future.
Answer: True
Learning Objective: 0C-02
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Future Value

[QUESTION]
10. The more frequent the rate of compounding, the more interest that is earned on previous interest, resulting in a higher future value.
Answer: True
Learning Objective: 0C-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Understand
Topic: Future Value

[QUESTION]
11. Present value indicates how much a present amount of money will grow to in the future.
Answer: False
Feedback: Present value indicates the value today of receiving some larger amount in the future.
Learning Objective: 0C-02
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Present Value

[QUESTION]
12. The discount rate is the rate at which someone is willing to give up current dollars for future dollars.
Answer: True
Learning Objective: 0C-02
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Discount Rate

[QUESTION]
13. An annuity is a series of equal cash payments over equal time intervals.
Answer: True
Learning Objective: 0C-03
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Annuity

[QUESTION]
14. 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.
Answer: False
Feedback: The three-year annuity represents three payments of $500 (= $1,500), so the annuity is greater.
Learning Objective: 0C-02
Learning Objective: 0C-03
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Future Value of a Single Amount
Topic: Future Value of an Annuity

[QUESTION]
15. 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.
Answer: True
Feedback: The three-year annuity represents three payments of $500 (= $1,500), so the present value of the annuity is greater.
Learning Objective: 0C-02
Learning Objective: 0C-03
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Present Value of a Single Amount
Topic: Present Value of an Annuity


Multiple Choice


[QUESTION]
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.
Answer: c
Learning Objective: 0C-01
Difficulty: Easy
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Remember
Topic: Time Value of Money

[QUESTION]
17. 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.
Answer: b
Learning Objective: 0C-02
Difficulty: Easy
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Remember
Topic: Present Value of a Single Amount

[QUESTION]
18. 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.
Answer: a
Learning Objective: 0C-02
Difficulty: Easy
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Remember
Topic: Future Value of a Single Amount

[QUESTION]
19. 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.
Answer: a
Learning Objective: 0C-02
Difficulty: Medium 
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Understand
Topic: Present and Future Value Tables

[QUESTION]
20. 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.
Answer: b
Learning Objective: 0C-02
Difficulty: Medium
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Understand
Topic: Present and Future Value Tables

[QUESTION]
21. 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.
Answer: b
Learning Objective: 0C-02
Difficulty: Medium
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Understand
Topic: Present and Future Value Tables

[QUESTION]
22. 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
0.793833
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.
Answer: b
Learning Objective: 0C-02
Difficulty: Medium
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Understand
Topic: Present and Future Value Tables

[QUESTION]
23. 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
0.793833
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.
Answer: a
Learning Objective: 0C-02
Difficulty: Medium
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Understand
Topic: Present and Future Value Tables

[QUESTION]
24. How much will $25,000 grow to in seven years, assuming an interest rate of 12% compounded annually?
a. $55,267.
b. $46,000.
c. $61,899.
d. $52,344.
Answer: a
Feedback: FV = $25,000 × 2.21068 (Table 1; n = 7; i = 12%) = $55,267.
Learning Objective: 0C-02
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the Future Value of a Single Amount

[QUESTION]
25. How much will $8,000 grow to in five years, assuming an interest rate of 8% compounded quarterly?
a. $10,989.
b. $11,755.
c. $11,888.
d. $12,013.
Answer: c
Feedback: FV = $8,000 × 1.48595 (Table 1; n = 20; i = 2%) = $11,888.
Learning Objective: 0C-02
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the Future Value of a Single Amount
Topic: Interest Compounding More Than Annually

[QUESTION]
26. What is the value today of receiving $2,500 at the end of three years, assuming an interest rate of 9% compounded annually?
a. $1,984.
b. $1,930.
c. $2,104.
d. $3,238.
Answer: b
Feedback: PV = $2,500 × 0.77218 (Table 2; n = 3; i = 9%) = $1,930.
Learning Objective: 0C-02
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the Present Value of a Single Amount

[QUESTION]
27. What is the value today of receiving $5,000 at the end of six years, assuming an interest rate of 8% compounded semiannually?
a. $3,151.
b. $3,203.
c. $3,428.
d. $3,123.
Answer: d
Feedback: PV = $5,000 × 0.62460 (Table 2; n = 12; i = 4%) = $3,123.
Learning Objective: 0C-02
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the Present Value of a Single Amount
Topic: Interest Compounding More Than Annually

[QUESTION]
28. Davenport Inc. offers a new employee a lump-sum signing bonus at the date of employment.  Alternatively, 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 lump-sum at employment date would make her indifferent between the two options?
a. $60,000.
b. $62,867.
c. $72,867.
d. $80,000.
Answer: c
Feedback: The lump-sum equivalent would be $30,000 + the present value of $50,000 where n=2 and i=8%. That is, $30,000 + ($50,000 × 0.85734 from Table 2) = $72,867.
Learning Objective: 0C-02
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Present Value Alternatives

[QUESTION]
29. Today, Thomas deposited $100,000 in a three-year, 12% CD that compounds quarterly. What is the maturity value of the CD?
a. $109,270.
b. $119,410.
c. $142,576.
d. $309,090.
Answer: c
Feedback: FV = $100,000 × 1.42576 (Table 1; n = 12; i = 3%) = $142,576.
Learning Objective: 0C-02
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the Future Value of a Single Amount
Topic: Interest Compounding More Than Annually

[QUESTION]
30. 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?
a. $35,069.
b. $43,131.
c. $37,205.
d. $35,000.
Answer: c
Feedback: PV = $50,000 × 0.74409 (Table 2; n = 10; i = 3%) = $37,205.
Learning Objective: 0C-02
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the Present Value of a Single Amount
Topic: Interest Compounding More Than Annually

[QUESTION]
31. 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?
a. $88,848.
b. $78,941.
c. $25,336.
d. $22,510.
Answer: b
Feedback: PV = $100,000 ×0.78941 (Table 2; n = 8; i = 3%) = $78,941.                 
Learning Objective: 0C-02
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the Present Value of a Single Amount
Topic: Interest Compounding More Than Annually

[QUESTION]
32. 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?
a. $66,110.
b. $81,310.
c. $406,550.
d. $330,560.
Answer: d
Feedback: PV = $500,000 ×0.66112 (Table 2; n = 14; i = 3%) = $330,560.
Learning Objective: 0C-02
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the Present Value of a Single Amount
Topic: Interest Compounding More Than Annually

[QUESTION]
33. At the end 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?
a. $41,557.
b. $47,700.
c. $32,403.
d. $38,108.
Answer: a
Feedback: PV = ($8,000 × 0.97087) + ($12,000 × 0.94260) + ($10,000 × 0.91514) + ($15,000 × 0.88849) = $41,557.
Learning Objective: 0C-02
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the Present Value of Uneven Cash Flows

[QUESTION]
34. 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?
a. $8,375.
b. $41,874.
c. $11,941.
d. $41,000.
Answer: b
Feedback: PV = $50,000 ×0.83748 (Table 2; n = 6; i = 3%) = $41,874.
Learning Objective: 0C-02
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the Present Value of a Single Amount
Topic: Interest Compounding More Than Annually

[QUESTION]
35. How much must be invested now at 9% interest to accumulate to $10,000 in five years?
a. $9,176.
b. $6,499.
c. $5,500.
d. $5,960.

Answer: b
Feedback: PV = $10,000 ×0.64993 (Table 2; n = 5, i = 9%) = $6,499.
Learning Objective: 0C-02
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the Present Value of a Single Amount

[QUESTION]
36. 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.
Answer: d
Learning Objective: 0C-03
Difficulty: Easy
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Remember
Topic: Present Value of an Annuity

[QUESTION]
37. 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.
Answer: c
Learning Objective: 0C-03
Difficulty: Easy
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Remember
Topic: Future Value of an Annuity

[QUESTION]
38. 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.
Answer: b
Learning Objective: 0C-03
Difficulty: Easy   
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Remember
Topic: Annuity

[QUESTION]
39. 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?
a. $35,766.
b. $26,813.
c. $23,833.
d. $7,504.
Answer: a
Feedback: FVA = $5,000 × 7.1533 (Table 3; n = 6; i = 7%) = $35,766.
Learning Objective: 0C-03
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the Future Value of an Annuity

[QUESTION]
40. 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?
a. $6,728.
b. $8,514.
c. $83,159.
d. $57,275.
Answer: d
Feedback: FVA = $1,000 × 57.2750 (Table 3; n = 20; i = 10%) = $57,275.
Learning Objective: 0C-03
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the Future Value of an Annuity


Posted by at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)