Ch.6 Quiz

Instructions
Please read the questions carefully.

This assessment is worth 100 points.

  1. Time value of money is another way of saying future buying power.   (2 points)

      
      

  2. Preparing a time diagram is an excellent way to visualize compound interest problems.   (2 points)

      
      

  3. Compound interest includes interest on interest.   (2 points)

      
      

  4. Interest rates are typically stated as annual rates.   (2 points)

      
      

  5. When interest is compounded, the effective rate of interest exceeds the contract rate of interest.   (2 points)

      
      

  6. The current amount is the present value of the future value.   (2 points)

      
      

  7. The calculation of future value requires the removal of interest.   (2 points)

      
      

  8. The calculation of present value requires the removal of interest.   (2 points)

      
      

  9. The compounding function is not considered when performing present value computations.   (2 points)

      
      

  10. Interpolation is an approximation.   (2 points)

      
      

  11. Monetary assets include only cash and cash equivalents.   (2 points)

      
      

  12. An annuity is another name for an insurance settlement.   (2 points)

      
      

  13. With an annuity due, a payment is made or received on the date the agreement begins.   (2 points)

      
      

  14. Other things being equal, the future value of an annuity due will exceed the future value of an ordinary annuity.   (2 points)

      
      

  15. Other things being equal, the present value of an annuity due will be less than the present value of an ordinary annuity.   (2 points)

      
      

  16. Given identical current amounts owed and identical interest rates, annual payments of an ordinary annuity will be greater than annual payments of an annuity due.   (2 points)

      
      

  17. A deferred annuity is one in which interest charges are deferred for a stated time period.   (2 points)

      
      

  18. An annuity is a series of equal periodic payments.   (2 points)

      
      

  19. To determine the equal periodic payments required to pay off a current amount due, the current amount would be multiplied by the present value of 1 at the required interest rate.   (2 points)

      
      

  20. Long-term lease payments are allocated between principal and interest.   (2 points)

      
      

  21. Column 3 is an interest table for the:   (2 points)

    a.  
    b.  
    c.  
    d.  

  22. Column 4 is an interest table for the:   (2 points)

    a.  
    b.  
    c.  
    d.  

  23. Column 6 is an interest table for the:   (2 points)

    a.  
    b.  
    c.  
    d.  

  24. Reba wishes to know how much would be in her savings account if she deposits a given sum in an account and leaves it there at 6% interest for five years. She should use a table for the:   (2 points)

    a.  
    b.  
    c.  
    d.  

  25. 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 first of the month, with interest of 12% on the unpaid balance. She should use a table for the:   (2 points)

    a.  
    b.  
    c.  
    d.  

  26. George Jones is planning on a cruise for his 70th birthday party. He wants to know how much he should set aside at the beginning of each month at 6% interest to accumulate the sum of $4,800 in five years. He should use a table for the:   (2 points)

    a.  
    b.  
    c.  
    d.  

  27. 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:   (2 points)

    a.  
    b.  
    c.  
    d.  

  28. To determine the present value factor of an annuity due for period n when given tables only for ordinary annuities:   (2 points)

    a.  
    b.  
    c.  
    d.  

  29. A series of equal periodic payments that starts more than one period after the agreement is called:   (2 points)

    a.  
    b.  
    c.  
    d.  

  30. A series of equal periodic payments in which the first payment is at the date of the contract is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  31. A series of equal periodic payments in which the first payment is made one compounding period after the date of the contract is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  32. The formula $1(1+i)n is for the:   (2 points)

    a.  
    b.  
    c.  
    d.  

  33. Carol wants to invest money in a 6% CD account 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?   (2 points)

    a.  
    b.  
    c.  
    d.  

  34. At the end of each quarter, Phil deposits $400 into an account that pays 12% interest compounded quarterly. How much will Phil have in the account in four years?   (2 points)

    a.  
    b.  
    c.  
    d.  

  35. 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?   (2 points)

    a.  
    b.  
    c.  
    d.  

  36. Bill wants to give Monica a $50,000 gift in seven years. If money is worth 6% compounded semiannually, what is Monica's gift worth today?   (2 points)

    a.  
    b.  
    c.  
    d.  

  37. Lynn deposits $2,000 in an IRA account on April 15, 2000. Assume the account will earn only 3% annually. If she repeats this for the next fourteen years, how much will she have on deposit on April 14, 2015?   (2 points)

    a.  
    b.  
    c.  
    d.  

  38. Sandra wants to cash in her winning lottery ticket. She can either receive ten $10,000 semiannual payments starting today, or she can receive a lump-sum payment now based on a 6% annual interest rate. What would be the lump-sum payment?   (2 points)

    a.  
    b.  
    c.  
    d.  

  39. Jose wants to cash in his winning lottery ticket. He can either receive five $5,000 semiannual payments starting today, or he can receive a lump-sum payment now based on a 6% annual interest rate. What would be the lump-sum payment?   (2 points)

    a.  
    b.  
    c.  
    d.  

  40. 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?   (2 points)

    a.  
    b.  
    c.  
    d.  

  41. At the end of the next four years, a new computer is expected to generate net cash flows of $10,000, $15,000, $18,000, and $20,000, respectively. What are the cash flows worth today if money is worth 3%?   (2 points)

    a.  
    b.  
    c.  
    d.  

  42. Jimmy has $255,906 accumulated in a 401K plan. The fund is earning a low, but safe, 3% a year. The withdrawals will take place at the end of each year starting a year from now. How soon will the fund be exhausted if Jimmy withdraws $30,000 each year?   (2 points)

    a.  
    b.  
    c.  
    d.  

  43. Debbie has $368,882 accumulated in a 401K plan. The fund is earning a low, but safe, 3% a year. The withdrawals will take place annually starting today. How soon will the fund be exhausted if Debbie withdraws $30,000 each year?   (2 points)

    a.  
    b.  
    c.  
    d.  

  44. On January 1, 2000, you are considering making an investment that will pay three annual payments of $10,000. The first payment is not expected until December 31, 2003. The S&P 500 is down to 200 so you are eager to earn 3%. What is the present value of the investment on January 1, 2000?   (2 points)

    a.  
    b.  
    c.  
    d.  

  45. How much must be deposited at the beginning of each year in order to accumulate to $10,000 in four years if interest is at 9%?   (2 points)

    a.  
    b.  
    c.  
    d.  

  46. Extoll Company sold the rights to use their patented process that will result in cash receipts of $2,500 at the end of each of the next four years and a balloon receipt of $4,000 at the end of the fifth year. The total present value of these payments if interest is at 9% is:   (2 points)

    a.  
    b.  
    c.  
    d.  

  47. Ajax Company purchased a five-year certificate of deposit for their building fund in the amount of $220,000. How much should the certificate of deposit be worth at the end of five years if interest is compounded at an annual rate of 9%?   (2 points)

    a.  
    b.  
    c.  
    d.  

  48. Achilles Corporation will deposit $50,000 into a money market sinking fund 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 sinking fund earns 9% interest?   (2 points)

    a.  
    b.  
    c.  
    d.  

  49. Titanic Corporation leased executive limos under terms of $20,000 down and four equal annual payments of $30,000 on the anniversary date of the lease. The interest rate implicit in the lease is 11%. The first year's interest expense would be:   (2 points)

    a.  
    b.  
    c.  
    d.  

  50. Shulman Publishers purchased a multi-color offset press with terms of $25,000 down and a noninterest-bearing note requiring payment of $20,000 at the end of each year for five years. The interest rate implicit in the purchase contract is 11%. Shulman would record the asset at:   (2 points)

    a.  
    b.  
    c.  
    d.  



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