BackTime Value of Money Equations quiz #2
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1/40BackSkip to main contentBackWhat is the main reason for discounting future cash flows?
To determine their value in today's terms, accounting for the opportunity to earn interest. If you receive \$5,000 every year for 3 years, what information do you need to find the present value?
You need the interest rate and the number of periods to use the present value table or formula. What is the effect of a higher interest rate on the present value of a future sum?
A higher interest rate decreases the present value of a future sum. What is the effect of a longer time period on the present value of a future sum?
A longer time period decreases the present value of a future sum. How does the time value of money apply to bonds payable?
It is used to determine the present value of future bond payments to price the bond. What is the main purpose of using the time value of money equation in accounting?
To calculate the present or future value of cash flows for decision-making and financial reporting. What is the present value of \$2,000 to be received in 2 years at a 5% interest rate?
PV = \$2,000 / (1.05)^2 ≈ \$1,814.06. What is the future value of \$1,200 invested for 5 years at 6% interest?
FV = \$1,200 × (1.06)^5 ≈ \$1,606.47. Why do we use the market interest rate in time value of money calculations?
Because it reflects the current rate available in the market, ensuring accurate valuation. What is the present value of an ordinary annuity of \$1,000 per year for 4 years at 7% interest?
Use the present value annuity table for 4 periods at 7% to find the factor, then multiply by \$1,000. What is the main difference between present value and future value?
Present value is the value today; future value is the value at a future date after interest is applied. How does the time value of money help in comparing different investment options?
It allows you to compare the present values of future cash flows from different investments. What is the present value of \$500 to be received in 1 year at a 12% interest rate?
PV = \$500 / (1.12) ≈ \$446.43. What is the future value of \$800 invested for 2 years at 9% interest?
FV = \$800 × (1.09)^2 ≈ \$950.32. What is the present value of an annuity if the payments are not equal or not at regular intervals?
It is not considered an annuity, so the present value must be calculated for each payment separately. Why is the exponent 'n' important in the time value of money formula?
It determines how many times interest is compounded, affecting the total amount. What is the present value of \$1,500 to be received in 4 years at a 6% interest rate?
PV = \$1,500 / (1.06)^4 ≈ \$1,188.44. What is the future value of \$2,000 invested for 3 years at 5% interest?
FV = \$2,000 × (1.05)^3 ≈ \$2,315.25. How do you determine the number of periods (n) in a time value of money problem?
Count the number of compounding intervals, usually years, between the present and future dates. What is the present value of \$10,000 to be received in 5 years at an 8% interest rate?
PV = \$10,000 / (1.08)^5 ≈ \$6,805.83. What is the future value of \$3,000 invested for 2 years at 7% interest?
FV = \$3,000 × (1.07)^2 ≈ \$3,429.90. What is the present value of an ordinary annuity of \$2,500 per year for 3 years at 10% interest?
Use the present value annuity table for 3 periods at 10% to find the factor, then multiply by \$2,500. What is the main benefit of using present value tables for annuities?
They simplify the calculation by providing a factor to multiply by the payment amount. What is the present value of \$4,000 to be received in 2 years at a 9% interest rate?
PV = \$4,000 / (1.09)^2 ≈ \$3,367.35. What is the future value of \$1,500 invested for 4 years at 6% interest?
FV = \$1,500 × (1.06)^4 ≈ \$1,893.57. What is the present value of an ordinary annuity of \$1,200 per year for 5 years at 8% interest?
Use the present value annuity table for 5 periods at 8% to find the factor, then multiply by \$1,200. What is the effect of increasing the interest rate on the future value of an investment?
Increasing the interest rate increases the future value of an investment. What is the effect of increasing the number of periods on the future value of an investment?
Increasing the number of periods increases the future value due to more compounding. What is the present value of \$7,000 to be received in 3 years at a 7% interest rate?
PV = \$7,000 / (1.07)^3 ≈ \$5,712.13. What is the future value of \$2,500 invested for 5 years at 5% interest?
FV = \$2,500 × (1.05)^5 ≈ \$3,193.06. What is the present value of an ordinary annuity of \$3,000 per year for 4 years at 9% interest?
Use the present value annuity table for 4 periods at 9% to find the factor, then multiply by \$3,000. What is the main reason for using the time value of money in accounting?
To accurately value future cash flows for financial reporting and decision-making. What is the present value of \$6,000 to be received in 2 years at a 10% interest rate?
PV = \$6,000 / (1.10)^2 ≈ \$4,958.68. What is the future value of \$4,000 invested for 3 years at 8% interest?
FV = \$4,000 × (1.08)^3 ≈ \$5,039.36. What is the present value of an ordinary annuity of \$2,000 per year for 6 years at 6% interest?
Use the present value annuity table for 6 periods at 6% to find the factor, then multiply by \$2,000. What is the present value of \$8,000 to be received in 4 years at a 5% interest rate?
PV = \$8,000 / (1.05)^4 ≈ \$6,577.89. What is the future value of \$5,000 invested for 2 years at 12% interest?
FV = \$5,000 × (1.12)^2 ≈ \$6,272.00. What is the present value of an ordinary annuity of \$1,500 per year for 3 years at 7% interest?
Use the present value annuity table for 3 periods at 7% to find the factor, then multiply by \$1,500. What is the present value of \$9,000 to be received in 5 years at a 6% interest rate?
PV = \$9,000 / (1.06)^5 ≈ \$6,728.13. What is the future value of \$2,200 invested for 4 years at 9% interest?
FV = \$2,200 × (1.09)^4 ≈ \$3,110.13.
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