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[QUESTION]
41. 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?
a. $87,744.
b. $28,251.
c. $50,000.
d. $15,529.
Answer: b
Feedback: PVA = $5,000 × 5.65022
(Table 4; n = 10; i = 12%) = $28,251.
Learning Objective: 0C-03
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the
Present Value of an Annuity
[QUESTION]
42. 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?
a. $8,486.
b. $8,251.
c. $9,000.
d. $9,273.
Answer: a
Feedback: PVA = $3,000 × 2.82861
(Table 4; n = 3; i = 3%) = $8,486.
Learning Objective: 0C-03
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the
Present Value of an Annuity
[QUESTION]
43. Tammy wants to buy a car
that costs $10,000 and wishes to know the amount of the monthly payments, which
will be made at the end of the month, with interest of 12% on the unpaid
balance. 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: d
Learning Objective: 0C-03
Difficulty: Medium
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Understand
Topic: Present and Future
Value Tables
[QUESTION]
44. George Jones is planning on a cruise for his 70th birthday
party. He wants to know how much he should set aside at the end of each month
at 6% interest to accumulate the sum of $4,800 in five years. 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: c
Learning Objective: 0C-03
Difficulty: Medium
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Understand
Topic: Present and Future
Value Tables
[QUESTION]
45. Zulu Corporation hires a
new chief executive officer and promises to pay her a signing bonus of $2
million per year for 10 years, starting at the end of the first year. The value
of this signing bonus is:
a. The present value of the annuity.
b. The future value of the annuity.
c. $20 million.
d. $0 because no cash is owed immediately.
Answer: a
Learning Objective: 0C-03
Difficulty: Medium
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Understand
Topic: Present Value of an
Annuity
[QUESTION]
46. Sandra won $5,000,000 in the state lottery, which she has
elected to receive at the end of each month over the next thirty years. She will receive 7% interest on unpaid
amounts. To determine the amount of her monthly check, 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: d
Learning Objective: 0C-03
Difficulty: Medium
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Understand
Topic: Present and Future
Value Tables
[QUESTION]
47. 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 4 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: d
Learning Objective: 0C-03
Difficulty: Medium
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Understand
Topic: Present and Future
Value Tables
[QUESTION]
48. 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 1 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: c
Learning Objective: 0C-03
Difficulty: Medium
AICPA: Reflective Thinking
AACSB: BB Critical Thinking
Blooms: Understand
Topic: Present and Future Value Tables
[QUESTION]
49. Quaker State Inc. offers
a new employee a lump-sum signing bonus at the date of employment. Alternatively, the employee can take $8,000
at the date of employment plus $20,000 at the end of each of his first three
years of service. Assuming the
employee's time value of money is 10% annually, what lump-sum at employment
date would make him indifferent between the two options?
a. $23,026.
b. $57,737.
c. $62,711.
d. None of the above is correct.
Answer: b
Feedback: The lump-sum equivalent would be $8,000 + the present
value of a $20,000 annuity where n=3, and i=10%. That is, $8,000 + ($20,000 × 2.48685 from
Table 4) = $57,737.
Learning Objective: 0C-03
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Present Value Alternatives
[QUESTION]
50. At the end of each
quarter, Patti deposits $500 into an account that pays 12% interest compounded
quarterly. How much will Patti have in the account in three years?
a. $7,096.
b. $7,013.
c. $7,129.
d. $8,880.
Answer: a
Feedback: FVA = $500 × 14.1920 (Table 3; n = 12; i = 3%) = $7,096.
Learning Objective: 0C-03
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the
Future Value of an Annuity
Topic: Interest Compounding
More Than Annually
[QUESTION]
51. Miller borrows $300,000
to be paid off in three years. The loan payments are semiannual with the first
payment due in six months, and interest is at 6%. What is the amount of each
payment?
a. $55,379.
b. $106,059.
c. $30,138.
d. $60,276.
Answer: a
Feedback: $300,000/5.41719 (Table 4; n = 6; i = 3%) = $55,379.
Learning Objective: 0C-03
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating Loan
Payment Amount
Topic: Interest Compounding
More Than Annually
[QUESTION]
52. Claudine Corporation
will deposit $5,000 into a money market account at the end of each year for the
next five years. How much will accumulate by the end of the fifth and final
payment if the account earns 9% interest?
a. $32,617.
b. $29,924.
c. $27,250.
d. $26,800.
Answer: b
Feedback: FVA = $5,000 × 5.9847 (Table 3; n = 5; i = 9%) = $29,924.
Learning Objective: 0C-03
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the
Future Value of an Annuity
[QUESTION]
53. What is the value today
of receiving five annual payments of $500,000, beginning one year from now,
assuming an 11% discount rate?
a. $2,500,000.
b. $2,225,000.
c. $1,847,950.
d. $2,115,270.
Answer: c
Feedback: PVA = $500,000 × 3.69590 (Table 4; n = 5; i = 11%) =
$1,847,950.
Learning Objective: 0C-03
Difficulty: Hard
AICPA: Analytic
AACSB: FN Measurement
Blooms: Analyze
Topic: Calculating the
Present Value of an Annuity
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