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Accounting 201 Name ___________________________ Chapter 6 Quiz Present and future value tables of $1 at 3% are presented below: 1. 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. 2. 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? A. $35,069. B. $43,131. C. $37,205. D. $35,000. 3. Shane wants to invest money in a 6% CD account 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. 4. 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. 5. 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. 6. 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. $41,556. B. $47,700. C. $32,400. D. $38,100. 7. 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. 8. Sondra deposits $2,000 in an IRA account on April 15, 2009. Assume the account will earn 3% annually. If she repeats this for the next nine years, how much will she have on deposit on April 14, 2019? A. $20,600. B. $20,728. C. $23,616. D. $24,715. 9. Shelley wants to cash in her winning lottery ticket. She can either receive ten, $100,000 semiannual payments starting today, or she can receive a lump-sum payment now based on a 6% annual interest rate. What is the equivalent lump-sum payment? A. $853,020. B. $801,971. C. $744,090. D. $878,611. 10. On January 1, 2009, you are considering making an investment that will pay three annual payments of $10,000. The first payment is not expected until December 31, 2011. You are eager to earn 3%. What is the present value of the investment on January 1, 2009? A. $26,662. B. $27,462. C. $28,286. D. $29,135. 11. On January 1, 2009, you are considering making an investment that will pay three annual payments of $10,000. The first payment is not expected until December 31, 2012. You are eager to earn 3%. What is the present value of the investment on January 1, 2009? A. $28,286. B. $25,886. C. $26,662. D. $27,300. 12. Rosie's Florist borrows $300,000 to be paid off in six 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. $25,750. B. $29,761. C. $30,139. D. $25,500. 13. 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? A. 11 years. B. 10 years. C. 8.5 years. D. 8.8 years. 14. 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? A. 15 years. B. 16 years. C. 14 years. D. 12.3 years. 15. 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? A. $23,586. B. $22,899. C. $21,565. D. $23,000. 16. Micro Brewery 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. 17. A firm leases equipment under a capital lease (analogous to an installment purchase) that calls for twelve semiannual payments of $39,014.40. The first payment is due at the inception of the lease. The annual rate on the lease is 6%. What is the value of the leased asset at inception of the lease? A. $388,349. B. $400,000. C. $454,128. D. $440,082. 18. 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: A. Future value of an ordinary annuity of 1. B. Future value of 1. C. Future value of an annuity of 1. D. Present value of an annuity due of 1. Present and future value tables of 1 at 9% are presented below. 19. 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%? A. $857,230. B. $142,985. C. $319,000. D. $338,496. 20. 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%? A. $1,671. B. $2,570. C. $2,358. D. $2,006. Present and future value tables of 1 at 11% are presented below. 21. Spielberg Inc. signed a $200,000 noninterest-bearing note due in five years from a production company eager to do business. Comparable borrowings have carried an 11% interest rate. At what amount should this debt be valued at its inception? A. $200,000. B. $178,000. C. $118,690. D. $222,000. 22. Mary Alice just won the lottery and is trying to decide between the annual cash flow payment option of $250,000 per year for 25 years beginning today and the lump sum option. Mary Alice can earn 6 percent investing his money. At what lump-sum payment amount would she be indifferent between the two alternatives? A. $6,250,000. B. $3,195,840. C. $3,637,590. D. $3,387,590. 23. 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. 24. Garland Inc. offers a new employee a lump sum signing bonus at the date of employment, June 1, 2009. Alternatively, the employee can take $39,000 at the date of employment plus $10,000 each June 1 for five years, beginning in 2013. Assuming the employee's time value of money is 9% annually, what lump sum at employment date would make him indifferent between the two options? A. $44,035. B. $40,855. C. $69,035. D. $65,855. 25. On January 1, 2009, Glanville Company sold goods to Otter Corporation. Otter signed a noninterest- bearing note requiring payment of $15,000 annually for six years. The first payment was made on January 1, 2009. The prevailing rate of interest for this type of note at date of issuance was 8%. Glanville should record the sales revenue in January 2009 of: A. $90,000. B. $69,343. C. $74,891. D. None of these. 26. 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: A. Present value of 1. B. Present value of an ordinary annuity of 1. C. Present value of an annuity due of 1. D. Future value of an annuity due of 1. 27. 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: A. Future value of an ordinary annuity of 1. B. Future value of an annuity due of 1. C. Future value of 1. D. Present value of an annuity due of 1. 28. 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. Present value of an annuity of 1. B. Future value of an annuity due of 1. C. Present value of an ordinary annuity of 1. D. Future value of an ordinary annuity of 1. 29. First Financial Auto Loan Department wishes to know the payment required at the first of each month on a $10,500, 48-month, 11% auto loan. To determine this amount, First Financial would: A. Multiply $10,500 by the present value of 1. B. Divide $10,500 by the future value of an ordinary annuity of 1. C. Divide $10,500 by the present value of an annuity due of 1. D. Multiply $10,500 by the present value of an ordinary annuity of 1. 30. Chancellor Ltd. sells an asset with a $1 million fair value to Sophie Inc. Sophie agrees to make 6 equal payments, one year apart, commencing on the date of sale. The payments include principal and 6% annual interest. Compute the annual payments. A. $166,651. B. $135,252. C. $203,351. D. $191,852. 31. You borrow $20,000 to buy a boat. The loan is to be paid off in monthly installments over one year at 18 percent interest annually. The first payment is due one month from today. What is the amount of each monthly payment? A. $1,667. B. $1,511. C. $1,834. D. None of these. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. Terms: A. Annuity B. Future value C. Future value of an annuity due D. Future value of an ordinary annuity E. Monetary asset F. Nonmonetary asset G. Present value of a single amount H. Present value of an annuity due I. Simple interest J. Time value of money K. Interest L. Present Value of an ordinary annuity M. Annuity Due N. Compound interest O. Deferred annuity P. Effective Yield Q. Future Value of a single amount R. Monetary liability S. Ordinary annuity 1. ____ A dollar now is worth more than a dollar later. 2. ____A series of equal periodic payments. 3. ____ Accumulation of a series of equal payments with the last payment accruing interest. 4. ____Accumulation of a series of equal payments with the last payment accruing no interest. 5. ____ Accumulation of an amount with interest. 6. _____ Amount today equivalent to a specified future amount. 7. _____ Its amount is not fixed or determinable. 8. _____ Based on initial principal only. 9. _____ Claim to a fixed amount of cash. 10. _____ Current worth of a series of equal payments received at the beginning of a period. 11. _____ Current worth of future cash flow(s). 12. _____ Fixed obligation to pay an amount in cash. 13. _____ Interest accumulates on interest. 14. _____The rate at which money will actually grow. 15. _____ Rent for the use of money. 16. _____ Series of equal cash payments received at the beginning of each period. 17. _____ Series of equal cash payments received at the end of each period. 18. _____ Series of equal cash payments with the first cash payment more than one period after the contract date. 19. _____ The money to which an amount invested will grow with time.