,WGU D103 OA 2 Intermediate Accounting I 2026/2027 Questions And
Answers
Q1. A company invests $10,000 at 10% simple interest. How much
interest is earned during the second year?
A) $100
B) $2,000
C) $2,100
D) $1,000
Correct Answer: D) $1,000
Rationale: Simple interest is calculated only on the original principal. Annual
interest equals $10,000 × 10% = $1,000 each year.
Q2. What is the future value of $5,000 invested for three years at
8% compounded annually?
A) $5,400.00
B) $6,298.56
C) $6,200.00
D) $7,000.00
Correct Answer: B) $6,298.56
Rationale: Future value equals $5,000 × 1.08³ = $6,298.56.
Q3. What is the present value of $12,100 to be received two years
from now when the appropriate annual discount rate is 10%?
A) $9,000
B) $9,900
C) $10,000
D) $11,000
Correct Answer: C) $10,000
Rationale: Present value equals $12,100 ÷ 1.10² = $10,000.
Q4. Which description defines an ordinary annuity?
A) Unequal payments made at irregular intervals
B) Equal payments beginning immediately and continuing forever
C) Equal payments occurring at the end of each period
D) One payment made at a future date
,Correct Answer: C) Equal payments occurring at the end of each period
Rationale: An ordinary annuity consists of equal periodic cash flows
occurring at each period-end.
Q5. What distinguishes an annuity due from an ordinary annuity?
A) An annuity due has unequal payments.
B) An annuity due never earns interest.
C) An annuity due has no fixed number of periods.
D) Payments occur at the beginning of each period.
Correct Answer: D) Payments occur at the beginning of each period.
Rationale: Annuity-due payments occur one period earlier than comparable
ordinary-annuity payments.
Q6. When the payment amount, number of payments, and interest
rate are identical, why is the present value of an annuity due
greater than that of an ordinary annuity?
A) Annuity-due payments are larger.
B) Ordinary annuities earn no interest.
C) Each annuity-due payment is discounted for one fewer period.
D) Ordinary-annuity payments are taxed at a higher rate.
Correct Answer: C) Each annuity-due payment is discounted for one fewer
period.
Rationale: Earlier cash flows have greater present value because they are
subject to less discounting.
Q7. What happens to the present value of a fixed future amount
when the discount rate increases, all other factors remaining
constant?
A) It increases proportionately.
B) It becomes equal to future value.
C) It remains unchanged.
D) It decreases.
Correct Answer: D) It decreases.
Rationale: A higher discount rate reduces the amount an investor would
need today to accumulate to the same future amount.
, Q8. What happens to the future value of a single investment when
the number of compounding periods increases while the interest
rate remains positive and constant?
A) Future value increases.
B) Future value decreases.
C) Future value remains constant.
D) Present and future value become equal.
Correct Answer: A) Future value increases.
Rationale: Additional compounding periods allow both principal and
previously earned interest to earn further returns.
Q9. Which description best defines a deferred annuity?
A) A stream of unequal cash flows
B) An annuity whose first payment begins after a specified delay
C) An annuity with payments occurring immediately
D) A single future lump sum
Correct Answer: B) An annuity whose first payment begins after a specified
delay
Rationale: A deferred annuity contains equal periodic payments, but the
payment stream begins after one or more periods have passed.
Q10. An entity deposits $2,000 at the end of each year for three
years into an account earning 10% annually. What is the future
value immediately after the third deposit?
A) $6,000
B) $6,620
C) $6,200
D) $7,260
Correct Answer: B) $6,620
Rationale: The first $2,000 grows for two years, the second for one year,
and the final deposit earns no additional interest at the measurement date:
$2,420 + $2,200 + $2,000 = $6,620.
Q11. The present-value-of-an-ordinary-annuity factor for three
periods at 10% is 2.48685. What is the present value of three
$1,000 year-end payments?
Answers
Q1. A company invests $10,000 at 10% simple interest. How much
interest is earned during the second year?
A) $100
B) $2,000
C) $2,100
D) $1,000
Correct Answer: D) $1,000
Rationale: Simple interest is calculated only on the original principal. Annual
interest equals $10,000 × 10% = $1,000 each year.
Q2. What is the future value of $5,000 invested for three years at
8% compounded annually?
A) $5,400.00
B) $6,298.56
C) $6,200.00
D) $7,000.00
Correct Answer: B) $6,298.56
Rationale: Future value equals $5,000 × 1.08³ = $6,298.56.
Q3. What is the present value of $12,100 to be received two years
from now when the appropriate annual discount rate is 10%?
A) $9,000
B) $9,900
C) $10,000
D) $11,000
Correct Answer: C) $10,000
Rationale: Present value equals $12,100 ÷ 1.10² = $10,000.
Q4. Which description defines an ordinary annuity?
A) Unequal payments made at irregular intervals
B) Equal payments beginning immediately and continuing forever
C) Equal payments occurring at the end of each period
D) One payment made at a future date
,Correct Answer: C) Equal payments occurring at the end of each period
Rationale: An ordinary annuity consists of equal periodic cash flows
occurring at each period-end.
Q5. What distinguishes an annuity due from an ordinary annuity?
A) An annuity due has unequal payments.
B) An annuity due never earns interest.
C) An annuity due has no fixed number of periods.
D) Payments occur at the beginning of each period.
Correct Answer: D) Payments occur at the beginning of each period.
Rationale: Annuity-due payments occur one period earlier than comparable
ordinary-annuity payments.
Q6. When the payment amount, number of payments, and interest
rate are identical, why is the present value of an annuity due
greater than that of an ordinary annuity?
A) Annuity-due payments are larger.
B) Ordinary annuities earn no interest.
C) Each annuity-due payment is discounted for one fewer period.
D) Ordinary-annuity payments are taxed at a higher rate.
Correct Answer: C) Each annuity-due payment is discounted for one fewer
period.
Rationale: Earlier cash flows have greater present value because they are
subject to less discounting.
Q7. What happens to the present value of a fixed future amount
when the discount rate increases, all other factors remaining
constant?
A) It increases proportionately.
B) It becomes equal to future value.
C) It remains unchanged.
D) It decreases.
Correct Answer: D) It decreases.
Rationale: A higher discount rate reduces the amount an investor would
need today to accumulate to the same future amount.
, Q8. What happens to the future value of a single investment when
the number of compounding periods increases while the interest
rate remains positive and constant?
A) Future value increases.
B) Future value decreases.
C) Future value remains constant.
D) Present and future value become equal.
Correct Answer: A) Future value increases.
Rationale: Additional compounding periods allow both principal and
previously earned interest to earn further returns.
Q9. Which description best defines a deferred annuity?
A) A stream of unequal cash flows
B) An annuity whose first payment begins after a specified delay
C) An annuity with payments occurring immediately
D) A single future lump sum
Correct Answer: B) An annuity whose first payment begins after a specified
delay
Rationale: A deferred annuity contains equal periodic payments, but the
payment stream begins after one or more periods have passed.
Q10. An entity deposits $2,000 at the end of each year for three
years into an account earning 10% annually. What is the future
value immediately after the third deposit?
A) $6,000
B) $6,620
C) $6,200
D) $7,260
Correct Answer: B) $6,620
Rationale: The first $2,000 grows for two years, the second for one year,
and the final deposit earns no additional interest at the measurement date:
$2,420 + $2,200 + $2,000 = $6,620.
Q11. The present-value-of-an-ordinary-annuity factor for three
periods at 10% is 2.48685. What is the present value of three
$1,000 year-end payments?
