,Appendix B - The Time Value of Money: Future Amounts and Present Values
Appendix B
The Time Value of Money: Future Amounts and Present Values
True / False Questions
1. Future value is the amount that must be invested today at a specific interest rate to receive a
particular amount at some future date.
True False
2. The present value of an ordinary annuity is the amount that equals payments made at the
end of successive equal periods is worth today.
True False
3. The future value of an investment gradually increases toward the present amount.
True False
4. Compounding interest assumes the interest on an investment is reinvested.
True False
5. Discounting a future amount of a cash receipt will determine the present value of that
receipt.
True False
6. The lower the discount rate of an investment, the lower the present value of the
investment.
True False
7. Annuities may provide equal amounts to an investor at fixed periods of time over the life of
an investment.
True False
App B-1
,Appendix B - The Time Value of Money: Future Amounts and Present Values
8. The market price of a bond is equal to its present value.
True False
9. An annuity due assumes the cash flow will occur at the beginning of the period.
True False
10. The rate of interest is usually expressed as an annual rate.
True False
11. An interest rate of 12% a year is the same as 6% for 2 months.
True False
12. The obligation for deferred income taxes is the only long-term liability that is not reported
at its present value.
True False
13. As the discount rate required by an investor increases, the present value of an investment
decreases.
True False
14. The present value of a single amount can only be calculated through the application of
complex calculations.
True False
15. The future amount of an annuity is calculated by multiplying the present value of the
annuity by its applicable factor from a table.
True False
App B-2
, Appendix B - The Time Value of Money: Future Amounts and Present Values
16. The future amount of an annuity is calculated by multiplying the periodic payment amount
by the discounted factor from the future value of an annuity table.
True False
17. The present value of a single amount is calculated by multiplying the future amount by the
present value of $1 table.
True False
18. The present value of an annuity is calculated by multiplying the periodic cash flows by the
discounted factor from the future value of an annuity table.
True False
Multiple Choice Questions
19. If you invested $10,000 at 6% on your 20th birthday how much would you have on your
40th birthday?
A. $32,071.40.
B. $31,180.00.
C. $36,785.59.
D. $12,158.12.
20. If I invest $20,000 at 2.5% today, how long will it take to reach a minimum of $50,000
compounded semi-annually?
A. 5 years.
B. 19 years.
C. 9 and ½ years.
D. 17 years.
App B-3
Appendix B
The Time Value of Money: Future Amounts and Present Values
True / False Questions
1. Future value is the amount that must be invested today at a specific interest rate to receive a
particular amount at some future date.
True False
2. The present value of an ordinary annuity is the amount that equals payments made at the
end of successive equal periods is worth today.
True False
3. The future value of an investment gradually increases toward the present amount.
True False
4. Compounding interest assumes the interest on an investment is reinvested.
True False
5. Discounting a future amount of a cash receipt will determine the present value of that
receipt.
True False
6. The lower the discount rate of an investment, the lower the present value of the
investment.
True False
7. Annuities may provide equal amounts to an investor at fixed periods of time over the life of
an investment.
True False
App B-1
,Appendix B - The Time Value of Money: Future Amounts and Present Values
8. The market price of a bond is equal to its present value.
True False
9. An annuity due assumes the cash flow will occur at the beginning of the period.
True False
10. The rate of interest is usually expressed as an annual rate.
True False
11. An interest rate of 12% a year is the same as 6% for 2 months.
True False
12. The obligation for deferred income taxes is the only long-term liability that is not reported
at its present value.
True False
13. As the discount rate required by an investor increases, the present value of an investment
decreases.
True False
14. The present value of a single amount can only be calculated through the application of
complex calculations.
True False
15. The future amount of an annuity is calculated by multiplying the present value of the
annuity by its applicable factor from a table.
True False
App B-2
, Appendix B - The Time Value of Money: Future Amounts and Present Values
16. The future amount of an annuity is calculated by multiplying the periodic payment amount
by the discounted factor from the future value of an annuity table.
True False
17. The present value of a single amount is calculated by multiplying the future amount by the
present value of $1 table.
True False
18. The present value of an annuity is calculated by multiplying the periodic cash flows by the
discounted factor from the future value of an annuity table.
True False
Multiple Choice Questions
19. If you invested $10,000 at 6% on your 20th birthday how much would you have on your
40th birthday?
A. $32,071.40.
B. $31,180.00.
C. $36,785.59.
D. $12,158.12.
20. If I invest $20,000 at 2.5% today, how long will it take to reach a minimum of $50,000
compounded semi-annually?
A. 5 years.
B. 19 years.
C. 9 and ½ years.
D. 17 years.
App B-3
