Test Bank Financial Accounting for Decision Makers 1st Edition Tietz PDF

Test Bank | Financial Accounting for Decision Makers, 1e (Tietz/Larson)
Complete Chapters ( Ch 1 to 12 plus Appx C )

Appendix C Time Value of Money

Learning Objective C-1

1) The present value of a single amount in the future can be determined using a present value of
$1 table.
Answer: TRUE
Diff: 2
LO: C-1

2) The process of determining the present value of a sum of money is called discounting because
the present value of a sum of money is more than the future value of a sum of money.
Answer: FALSE
Diff: 2
LO: C-1

3) Ordinary annuity investments provide multiple receipts of an unequal amount at fixed year-
end intervals over the investment's duration.
Answer: FALSE
Diff: 2
LO: C-1

4) When the market interest rate is equal to the face interest rate on bonds, the present value of
the bonds will be less than the bond's face value at the date of sale of the bonds.
Answer: FALSE
Diff: 2
LO: C-1

5) Most business decision makers solve present-value problems with Excel because the present-
value tables are limited to the interest rates in the columns and the number of periods in the rows.
Answer: TRUE
Diff: 2
LO: C-1

6) The difference between the future value of an investment and the original investment is the
amount of interest revenue that will be earned.
Answer: TRUE
Diff: 2
LO: C-1

7) Interest, the cost of using money, is recorded as interest revenue by the borrower.
Answer: FALSE
Diff: 2
LO: C-1

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,8) The term time value of money refers to the fact that money earns interest over time.
Answer: TRUE
Diff: 2
LO: C-1

9) Most businesses ignore compound interest when calculating interest on debt or investments.
Answer: FALSE
Diff: 2
LO: C-1

10) The term future value means the sum of money that an investment will be "worth" at a
specified time in the future, assuming a certain interest rate.
Answer: TRUE
Diff: 2
LO: C-1

11) Whether making investments or borrowing money, we don't need to recognize the interest
we receive or pay.
Answer: FALSE
Diff: 2
LO: C-1

12) Interest is the cost of using money.
Answer: TRUE
Diff: 2
LO: C-1

13) The time value of money plays a key role in measuring the value of certain long-term
investments as well as long-term debt.
Answer: TRUE
Diff: 2
LO: C-1

14) Compound interest is the only interest you earn on your principal amount.
Answer: FALSE
Diff: 2
LO: C-1

15) The term present value means today's value of a future payment or a series of future
payments, assuming that those payments include interest at the current market rate.
Answer: TRUE
Diff: 2
LO: C-1




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, 16) An ordinary annuity is an investment that provides multiple receipts of an equal amount at
fixed year-end intervals over the investment's duration.
Answer: TRUE
Diff: 2
LO: C-1

17) The present value of a bond–its market price–is the present value of the future principal
amount at maturity plus the present value of the future stated interest payments.
Answer: TRUE
Diff: 2
LO: C-1

18) The principal, when investing in a bond, is a single amount to be received by the investor and
paid by the debtor at maturity.
Answer: TRUE
Diff: 2
LO: C-1

19) The interest paid on a bond is not an annuity because it occurs periodically.
Answer: FALSE
Diff: 2
LO: C-1

20) All of the following are necessary to compute the future value of a single amount except the:
A) interest rate.
B) length of time between investment and future payment or receipt.
C) amount of initial payment or receipt.
D) maturity value.
Answer: D
Diff: 2
LO: C-1

21) To calculate the future value of an investment, you need ________ inputs.
A) 2
B) 3
C) 4
D) 5
Answer: B
Diff: 2
LO: C-1




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