Question

Since it wasn't answered (ran out of time), I changed my question so that ONLY the correct answers are on here.

Question 1

Interest is the difference between the amount borrowed and the principal.

FALSE

Question 2

Compound interest is computed on the principal and any interest earned that has not been paid or withdrawn.

TRUE

Question 3

When the periodic payments are not equal in each period, the future value can be computed by using a future value of an annuity table.

FALSE

Question 4

The process of determining the present value is referred to as discounting the future amount.

TRUE

Question 5

A higher discount rate produces a higher present value.

FALSE

Question 6

In computing the present value of an annuity, it is not necessary to know the number of discount periods.

FALSE

Question 7

The decision to make long-term capital investments is best evaluated using discounting techniques that recognize the time value of money.

TRUE

Question 8

The factor 1.0816 is taken from the 4% column and 2 periods row in a certain table. From what table is this factor taken?

Future value of 1.

Question 9

The future value of 1 factor will always be

greater than 1

Question 10

All of the following are necessary to compute the future value of a single amount except the

Maturity value.

Question 11

Which table has a factor of 1.00000 for 1 period at every interest rate?

Future value of an annuity of 1

Question 12

McGoff Company deposits $20,000 in a fund at the end of each year for 5 years. The fund pays interest of 4% compounded annually. The balance in the fund at the end of 5 years is computed by multiplying

$20,000 by the future value of an annuity factor.

Question 13

If $30,000 is deposited in a savings account at the end of each year and the account pays interest of 5% compounded annually, what will be the balance of the account at the end of 10 years?

377,337

Question 14

Which of the following is not necessary to know in computing the future value of an annuity?

Year the payments begin

Question 15

In present value calculations, the process of determining the present value is called

Discounting

Question 16

Present value is based on

The dollar amount to be received.

The length of time until the amount is received.

The interest rate.

ALL OF THESE

Question 17

If you are able to earn an 8% rate of return, what amount would you need to invest to have $30,000 one year from now?

27,778

Question 18

If the single amount of $2,000 is to be received in 2 years and discounted at 11%, its present value is

1,623

Question 19

Suppose you have a winning lottery ticket and you are given the option of accepting $3,000,000 three years from now or taking the present value of the $3,000,000 now. The sponsor of the prize uses a 6% discount rate. If you elect to receive the present value of the prize now, the amount you will receive is

2,518,860

Question 20

The amount you must deposit now in your savings account, paying 5% interest, in order to accumulate $10,000 for your first tuition payment when you start college in 3 years is

8,638

Question 21

The "Table 1" factor used to calculate the future value of 10,000 earning 10% interest for 5 years is:

1.61051

Question 22

The "Table 2" factor used to calculate the future value of 3,000 received each year for 10 years, assuming 7% interest is:

13.8164

Question 23

The "Table 3" factor used to calculate the present value of 100,000 assuming 12% interest 7 years is:

.45235

Question 24

The "Table 4" factor used to calculate the present value of 5,000 assuming 6% interest for each of 5 years is:

.4.21236

Question 25

What is the present value of $10,000 today?

10,000

Answer 1

Answer to Q#1 (First question in the list): FALSE Reason: Loan is a finance arrangement that a firm enter into with a bank so that bank will lend money to the firm for an interest rate repayable by the firm in a fixed time period either as a lumpsum repayment or periodic repayment. In either case, the amount borrowed is called the principal amount of the loan. The difference between total amount repaid by the firm to the bank for the loan arrangement and the principal borrowed is the total interest associated with the loan arrangement concerned. As the terms "principal" and "amount borrowed" are one and the same, given statement is false.