Question : Multiple Choice 16. The concept that interest causes the value of : 1255674

 

Multiple Choice

 

 

 

 

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. 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.

 

 

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.

 

 

              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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

              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.

 

 

              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.

 

 

              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.

 

 

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.

 

 

              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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.

 

 

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.