TEST BANK FINANCIAL ACCOUNTING FUNDAMENTALS 5TH EDITION WILD app b test bank FINAL

APPENDIX B
PRESENT AND FUTURE VALUES IN ACCOUNTING
Present Value of 1
Periods
3
4
5
6
7
8
9
10

3%
0.9151
0.8885
0.8626
0.8375
0.8131
0.7894
0.7664
0.7441

4%
0.8890
0.8548
0.8219
0.7903
0.7599
0.7307
0.7026

0.6756

5%
0.8638
0.8227
0.7835
0.7462
0.7107
0.6768
0.6446
0.6139

6%
0.8396
0.7921
0.7473
0.7050
0.6651
0.6274
0.5919
0.5584

7%
0.8163
0.7629
0.7130
0.6663
0.6227
0.5820
0.5439

0.5083

8%
0.7938
0.7350
0.6806
0.6302
0.5835
0.5403
0.5002
0.4632

9%
0.7722
0.7084
0.6499
0.5963
0.5470
0.5019
0.4604
0.4224

10%
0.7513
0.6830
0.6209
0.5645
0.5132
0.4665
0.4241

0.3855

12%
0.7118
0.6355
0.5674
0.5066
0.4523
0.4039
0.3606
0.3220

4%
1.1249
1.1699
1.2167
1.2653
1.3159
1.3686
1.4233
1.4802

5%
1.1576
1.2155
1.2763
1.3401
1.4071
1.4775
1.5513

1.6289

6%
1.1910
1.2625
1.3382
1.4185
1.5036
1.5938
1.6895
1.7908

7%
1.2250
1.3108
1.4026
1.5007
1.6058
1.7182
1.8385
1.9672

8%
1.2597
1.3605
1.4693
1.5869
1.7138
1.8509
1.9990

2.1589

9%
1.2950
1.4116
1.5386
1.6771
1.8280
1.9926
2.1719
2.3674

10%
1.3310
1.4641
1.6105
1.7716
1.9487
2.1436
2.3579
2.5937

12%
1.4049
1.5735
1.7623
1.9738
2.2107
2.4760
2.7731

3.1058

Future Value of 1
Periods
3
4
5
6
7
8
9
10

3%
1.0927
1.1255
1.1593
1.1941
1.2299
1.2668
1.3048
1.3439

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B-1


Present Value of an Annuity of 1

Periods
3
4
5
6
7
8
9
10

3%
2.8286
3.7171
4.5797
5.4172
6.2303
7.0197
7.7861
8.5302

4%
2.7751
3.6299
4.4518
5.2421
6.0021
6.7327
7.4353
8.1109

5%
2.7232
3.5460
4.3295
5.0757
5.7864
6.4632
7.1078
7.7217

6%
2.6730
3.4651
4.2124
4.9173
5.5824
6.2098
6.8017
7.3601

7%
2.6243
3.3872
4.1002
4.7665
5.3893
5.9713
6.5152
7.0236

8%
2.5771
3.3121
3.9927
4.6229
5.2064
5.7466
6.2469
6.7101

9%
2.5313
3.2397
3.8897
4.4859
5.0330
5.5348
5.9952
6.4177

10%
2.4869
3.1699
3.7908
4.3553
4.8684
5.3349
5.7950
6.1446

12%
2.4018
3.0373
3.6048
4.1114
4.5638
4.9676
5.3282
5.6502

Future Value of an Annuity of 1
Periods
3
4
5
6
7
8
9
10

3%
3.0909
4.1836
5.3091
6.4684
7.6625
8.8923

4%

3.1216
4.2465
5.4163
6.6330
7.8983
9.2142

5%
3.1525
4.3101
5.5256
6.8019
8.1420
9.5491

6%
3.1836
4.3746
5.6371
6.9753
8.3938
9.8975

10.1591
11.4639

10.5828
12.0061

11.0266

12.5779

11.4913
13.1808

7%
3.2149
4.4399
5.7507
7.1533
8.6540

8%
3.2464
4.5061
5.8666
7.3359
8.9228

9%
3.2781
4.5731
5.9847
7.5233
9.2004

10%
3.3100
4.6410
6.1051

7.7156
9.4872

10.2598
11.9780
13.8164

10.6366
12.4876
14.4866

11.0285
13.0210
15.1929

11.4359
13.5795
15.9374

12%
3.3744
4.7793
6.3528
8.1152
10.0890
12.2997
14.7757
17.5487

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B-2


True / False Questions
1. Interest is the borrower’s payment to the owner of an asset for its use.
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: APPB-C1
Topic: Present and Future Value Concepts

2. From the perspective of an account holder, a savings account is a liability with interest.
Answer: False
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: APPB-C1
Topic: Present and Future Value Concepts

3. An interest rate is also called a discount rate.
Answer: True
Blooms: Remember
AACSB: Communication

AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: APPB-P1
Topic: Present Value of a Single Amount

4. Present and future value computations enable companies to measure or estimate the interest
component of holding assets or liabilities over time.
Answer: True
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: APPB-C1
Topic: Present and Future Value Concepts

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McGraw-Hill Education.

B-3


5. The number of periods in a present value calculation may only be expressed in years.
Answer: False
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy

Learning Objective: APPB-P1
Topic: Present Value of a Single Amount

6. The present value factor for determining the present value of $6,300 to be received three
years from today at 10% interest compounded semiannually is 0.7462.
Answer: True
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: APPB-P1
Topic: Present Value of a Single Amount

7. The present value of 1 formula is often useful when a borrowed asset must be repaid in full
at a later date and the borrower wants to know the worth of the asset at the future date.
Answer: False
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: APPB-P1
Topic: Present Value of a Single Amount

8. In a present value or future value table, the length of one time period may be interpreted as
one year, one month, or any other length of time.
Answer: True
Blooms: Remember
AACSB: Communication

AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: APPB-P1
Learning Objective: APPB-P2
Topic: Present Value of a Single Amount
Topic: Future Value of a Single Amount

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McGraw-Hill Education.

B-4


9. The present value of $2,000 to be received nine years from today at 8% interest
compounded annually is $1,000.
Answer: True
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: APPB-P1
Topic: Present Value of a Single Amount

Feedback: Present Value = Future Value * Interest Factor for 9 years @8%
Present Value = $2,000 * 0.5002 = $1,000

10. Sandra has a savings account that has accumulated to $50,000. She started with $28,225,
and earned interest at 10% compounded annually. It took her five years to accumulate the

$50,000.
Answer: False
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA BB: Critical Thinking
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: APPB-P1
Topic: Present Value of a Single Amount

Feedback: PV Factor = Present Value/Future Value
PV Factor = $28,225/$50,000 = 0.5645
0.5645 is the present value of 1 factor, 10%, 6 periods

11. Future value can be found if the interest rate (i), the number of periods (n), and the present
value (p) are known.
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: APPB-P2
Topic: Future Value of a Single Amount

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McGraw-Hill Education.

B-5

12. The number of periods in a future value calculation may only be expressed in years.
Answer: False
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 1 Easy
Learning Objective: APPB-P2
Topic: Future Value of a Single Amount

13. The future value of $100 compounded semiannually for 3 years at 12% equals $140.49.
Answer: False
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: APPB-P2
Topic: Future Value of a Single Amount

Feedback: Future Value = Present Value * Interest Factor
Future Value = $100 * 1.4185 = $141.85

14. At an annual interest rate of 8% compounded annually, $5,300 will accumulate to a total
of $7,210.65 in 5 years.
Answer: False
Blooms: Apply
AACSB: Analytic

AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: APPB-P2
Topic: Future Value of a Single Amount

Feedback: FV Factor = Future Value/Present Value
FV Factor = $7,210.65/$5,300 = 1.3605
1.3605 is the future value of $1 factor, 8%, 4 periods

15. An annuity is a series of equal payments occurring at equal intervals.
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: APPB-P3
Topic: Present Value of an Annuity
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McGraw-Hill Education.

B-6


16. The present value of an annuity table can be used to determine the value today of a series
of payments to be received in the future.
Answer: True
Blooms: Remember
AACSB: Communication

AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: APPB-P3
Topic: Present Value of an Annuity

17. A series of equal payments made or received at the end of each period is an ordinary
annuity.
Answer: True
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: APPB-P3
Topic: Present Value of an Annuity

18. The present value of $5,000 per year for three years at 12% compounded annually is
$12,009.
Answer: True
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 3 Hard
Learning Objective: APPB-P3
Topic: Present Value of an Annuity

Feedback: 2.4018 is the PV factor on the Present Value of an Annuity table; n =
3; i = 12%

Present Value of an Annuity = Annuity * PV Factor
Present Value of an Annuity = $5,000 * 2.4018 = $12,009

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McGraw-Hill Education.

B-7


19. With deposits of $5,000 at the end of each year, you will have accumulated $38,578 at the
end of the sixth year if the annual rate of interest is 10%.
Answer: True
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 3 Hard
Learning Objective: APPB-P4
Topic: Future Value of an Annuity

Feedback: 7.7156 is the FV factor on the Future Value of an Annuity table; n = 6;
i = 10%
Future Value of an Annuity = Annuity * FV Factor
Future Value of an Annuity = $5,000 * 7.7156 = $38,578
7.7156 is the interest factor on the Future Value of an Annuity table;
n = 6; i = 10%

20. The future value of an ordinary annuity is the accumulated value of each annuity payment
excluding interest as of the date of the final payment.
Answer: False

Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium
Learning Objective: APPB-P4
Topic: Future Value of an Annuity

Multiple Choice Questions
21. Interest may be defined as:
A. Time.
B. A borrower’s payment to the owner of an asset for its use.
C. The future value of a present amount.
D. Always a liability.
E. Always an asset.
Answer: B
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: APPB-C1
Topic: Present and Future Value Concepts

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McGraw-Hill Education.

B-8

Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

B-9


22. If we want to know the value of present-day assets at a future date, we can use:
A. Present value computations
B. Annuity computations
C. Interest computations.
D. Future value computations.
E. Earnings computations.
Answer: D
Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium
Learning Objective: APPB-C1
Topic: Present and Future Value Concepts

23. Which interest rate column would you use from a present value or future value table for
8% interest compounded quarterly?
A. 12%
B. 6%
C. 3%
D. 2%
E. 1%
Answer: D
Feedback: An 8% annual interest rate is divided by 4 to find the quarterly rate.

Blooms: Understand
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium
Learning Objective: APPB-P1
Learning Objective: APPB-P2
Topic: Present Value of a Single Amount
Topic: Future Value of a Single Amount

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McGraw-Hill Education.

B-10


24. A company is considering investing in a project that is expected to return $350,000 four
years from now. How much is the company willing to pay for this investment if the company
requires a 12% return?
A. $ 55,606
B. $137,681
C. $222,425
D. $265,764
E. $350,000
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium

Learning Objective: APPB-P1
Topic: Present Value of a Single Amount

Feedback: The PV factor on the Present Value table when n =4 and i = 12% is
0.6355
Present Value = Future Value * PV Factor
Present Value = $350,000 * 0.6355 = $222,425

25. Jason has a loan that requires a single payment of $4,000 at the end of 3 years. The loan’s
interest rate is 6%, compounded semiannually. How much did Jason borrow?
A. $3,358.40
B. $4,000.00
C. $3,660.40
D. $4,776.40
E. $3,350.00
Answer: E
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 3 Hard
Learning Objective: APPB-P1
Topic: Present Value of a Single Amount

Feedback: 3 years = 6 semiannual periods; 6% annual interest = 3%
semiannually
The PV factor on the Present Value table when n =6 and i = 3% is
0.8375
Present Value = Future Value * PV Factor
Present Value = $4,000 * 0.8375 = $3,350.00

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McGraw-Hill Education.

B-11


26. Patricia wants to invest a sum of money today that will yield $10,000 at the end of 6
years. Assuming she can earn an interest rate of 6% compounded annually, how much must
she invest today?
A. $7,050
B. $9,400
C. $6,000
D. $8,836
E. $8,306
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium
Learning Objective: APPB-P1
Topic: Present Value of a Single Amount

Feedback: The PV factor on the Present Value table when n =6 and i = 6% is
0.7050
Present Value = Future Value * PV Factor
Present Value = $10,000 * 0.7050 = $7,050.00

27. Marshall has received an inheritance and wants to invest a sum of money today that will

yield $5,000 at the end of each of the next 10 years. Assuming he can earn an interest rate of
5% compounded annually, how much of his inheritance must he invest today?
A. $50,000.00
B. $47,500.00
C. $45,125.00
D. $38,608.50
E. $100,000.00
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium
Learning Objective: APPB-P3
Topic: Present Value of an Annuity

Feedback: The PV factor on the Present Value of an Annuity table when n =10
and i = 5% is 7.7217
Present Value = Future Annuity Value * PV Factor
Present Value = $5,000 * 7.7217 = $38,608.50

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McGraw-Hill Education.

B-12


28. Cody invests $1,800 per year from his summer wages at a 4% annual interest rate. He
plans to take a European vacation at the end of 4 years when he graduates from college. How
much will he have available to spend on his vacation?

A. $7,787.52
B. $7,488.00
C. $6,912.00
D. $7,200.00
E. $7,643.70
Answer: E
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium
Learning Objective: APPB-P4
Topic: Future Value of an Annuity

Feedback: The FV factor on the Future Value of an Annuity table when n =4 and i
= 4% is 4.2465
Future Value = Annuity Value * FV Factor
Future Value = $1,800 * 4.2465 = $7,643.70

29. Jessica received a gift of $7,500 at the time of her high school graduation. She invests it
in an account that yields 10% compounded semi-annually. What will the value of Jessica’s
investment be at the end of 5 years?
A. $8,250.00
B. $11,250.00
C. $12,216.75
D. $9,375.00
E. $10,500.00
Answer: C
Blooms: Apply
AACSB: Analytic

AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium
Learning Objective: APPB-P2
Topic: Future Value of a Single Amount

Feedback: Five years = 10 semiannual periods and a 10% annual interest rate =
5% semiannually
The FV factor on the Future Value of 1 table when n =10 and i = 5% is
1.6289
Future Value = Present Value * FV Factor
Future Value = $7,500 * 1.6289 = $12,216.75

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McGraw-Hill Education.

B-13


30. A company expects to invest $5,000 today at 12% annual interest and plans to receive
$15,529 at the end of the investment period. How many years will elapse before the company
accumulates the $15,529?
A. 0.322 years
B. 3.1058 years
C. 5 years
D. 8 years
E. 10 years
Answer: E
Blooms: Apply
AACSB: Analytic

AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 3 Hard
Learning Objective: APPB-P1
Learning Objective: APPB-P2
Topic: Present Value of a Single Amount
Topic: Future Value of a Single Amount

Feedback: Present Value = Future Value * PV Factor
$5,000 = $15,529 * PV Factor
PV Factor = 0.3220
0.3220 is the PV factor on the Present Value table; i = 12%; n = 10
Or, Alternative Solution:
Future Value = Present Value * FV Factor
$15,529 = $5,000 * FV Factor
Interest Factor = 3.1058;
3.1058 is the FV factor on the Future Value table; i = 12%; n = 10

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McGraw-Hill Education.

B-14


31. Keisha has $3,500 now and plans on investing it in a fund that will pay her 12% interest
compounded quarterly. How much will Keisha have accumulated after 2 years?
A. $4,433.80
B. $4,340.00
C. $4,390.40
D. $3,920.00

E. $3,500.00
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 3 Hard
Learning Objective: APPB-P2
Topic: Future Value of a Single Amount

Feedback: Two years = 8 quarterly periods and a 12% annual interest rate = 3%
quarterly
The FV factor on the Future Value of 1 table where i = 3% and n = 8 is
1.2668
Future Value = Present Value * FV Factor
Future Value = $3,500 * 1.2668 = $4,433.80

32. How long will it take an investment of $25,000 at 6% compounded annually to
accumulate to a total of $35,462.50?
A. 4 years
B. 5 years
C. 6 years
D. 2 years
E. 10 years
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 3 Hard

Learning Objective: APPB-P1
Learning Objective: APPB-P2
Topic: Present Value of a Single Amount
Topic: Future Value of a Single Amount

Feedback:
Present Value = Future Value * PV Factor
$25,000 = $35,462.50 * PV Factor; PV Factor = 0.7050
0.7050 is the interest factor on the Present Value table; i = 6%; n =
6
Alternative Solution:

Future Value = Present Value * FV Factor
$35,462.50 = $25,000 * FV Factor; FV Factor = 1.4185

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McGraw-Hill Education.

B-15


1.4185 is the interest factor on the Future Value
table; i = 6%; n = 6

33. What interest rate is required to accumulate $6,802.50 in four years from an investment of
$5,000?
A. 5%
B. 8%
C. 10%
D. 12%

E. 15%
Answer: B
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 3 Hard
Learning Objective: APPB-P1
Learning Objective: APPB-P2
Topic: Present Value of a Single Amount
Topic: Future Value of a Single Amount

Feedback: Present Value = Future Value * PV Factor
$5,000 = $6,802.50 * PV Factor; PV Factor = 0.7350
0.7350 is the PV factor on the Present Value table; n = 4; i = 8%
Or, Alternative Solution:
Future Value = Present Value * FV Factor
$6,802.50 = $5,000 * FV Factor; Interest Factor = 1.3605
1.3605 is the FV factor on the Future Value table; n =
4; i = 8%

34. Russell Company has acquired a building with a loan that requires payments of $20,000
every six months for 5 years. The annual interest rate on the loan is 12%. What is the present
value of the building?
A. $ 72,096
B. $113,004
C. $147,202
D. $ 86,590
E. $200,000
Answer: C

Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium
Learning Objective: APPB-P3
Topic: Present Value of an Annuity

Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

B-16


Feedback: The PV factor on the Present Value of an Annuity table when n = 5
and i = 12% is 7.3601.
Present Value of an Annuity = Annuity * PV Factor
Present Value of an Annuity = $20,000 * 7.3601 = $147,202

35. Marc Lewis expects an investment of $25,000 to return $6,595 annually. His investment is
earning 10% per year. How many annual payments will he receive?
A. Five payments
B. Six payments
C. Four payments
D. Three payments
E. More than six payments
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry

AICPA FN: Decision Making
Difficulty: 3 Hard
Learning Objective: APPB-P3
Topic: Present Value of an Annuity

Feedback: Present Value of an Annuity = Annuity * PV Factor
$25,000 = $6,595 * PV Factor; PV Factor = 0.3.7908
3.7908 is the PV factor on the Present Value of an Annuity table; i =
10%; n = 5

36. A company is considering an investment that will return $22,000 semiannually at the end
of each semiannual period for 4 years. If the company requires an annual return of 10%, what
is the maximum amount it is willing to pay for this investment?
A. Not more than $69,738
B. Not more than $139,476
C. Not more than $ 88,000
D. Not more than $142,190
E. Not more than $176,000
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium
Learning Objective: APPB-P3
Topic: Present Value of an Annuity

Feedback: The PV factor on the Present Value of an Annuity table when n = 8 and
i = 5% is 6.4632.
Present Value of an Annuity = Annuity * PV Factor

Present Value of an Annuity = $22,000 * 6.4632 = $142,190
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

B-17


Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

B-18


37. What amount can you borrow if you make six quarterly payments of $4,000 at a 12 %
annual rate of interest?
A. $24,838.00
B. $21,668.80
C. $31,049.00
D. $40,000.00
E. $44,800.00
Answer: B
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium
Learning Objective: APPB-P3
Topic: Present Value of an Annuity

Feedback: The PV factor on the Present Value of an Annuity table when n = 6

and i = 3% is 5.4172.
Present Value of an Annuity = Annuity * PV Factor
Present Value of an Annuity = $4,000 * 5.4172 = $21,668.80

38. What amount can you borrow if you make seven semiannual payments of $4,000 at an 8%
annual rate of interest?
A. $28,000.00
B. $25,760.00
C. $31,049.00
D. $24,008.40
E. $35,691.20
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium
Learning Objective: APPB-P3
Topic: Present Value of an Annuity

Feedback: An 8% annual interest rate = 4% semiannually
The PV factor on the Present Value of an Annuity table when n = 7 and i
= 4% is 6.0021.
Present Value of an Annuity = Annuity * PV Factor
Present Value of an Annuity = $4,000 * 6.0021= $24,008.40

Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

B-19

39. An individual is planning to set-up an education fund for her daughter. She plans to invest
$7,000 annually at the end of each year. She expects to withdraw money from the fund at the
end of 9 years and expects to earn an annual return of 8%. What will be the total value of the
fund at the end of 9 years?
A. $ 87,413
B. $ 68,040
C. $50,400
D. $126,000
E. $45,360
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 3 Hard
Learning Objective: APPB-P4
Topic: Future Value of an Annuity

Feedback: The FV factor on the Future Value of an Annuity table when n =9 and i
= 8% is 12.4876.
Future Value of an Annuity = Annuity * FV Factor
Future Value of an Annuity = $7,000 * 12.4876 = $87,413

40. An individual is planning to set-up an education fund for his grandchildren. He plans to
invest $10,000 annually at the end of each year. He expects to withdraw money from the fund
at the end of 10 years and expects to earn an annual return of 8%. What will be the total value
of the fund at the end of 10 years?
A. $ 46,320

B. $ 67,107
C. $100,000
D. $144,866
E. $215,890
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 3 Hard
Learning Objective: APPB-P4
Topic: Future Value of an Annuity

Feedback: The FV factor on the Future Value of an Annuity table when n =10 and
i = 8% is 14.4866.
Future Value of an Annuity = Annuity * FV Factor
Future Value of an Annuity = $10,000 * 14.4866 = $144,866

Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

B-20


41. Clara is setting up a retirement fund, and she plans on depositing $5,000 per year in an
investment that will pay 7% annual interest. How long will it take her to reach her retirement
goal of $69,082?
A. 13.816 years
B. 0.072 years
C. 10 years

D. 20 years
E. 5 years
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 3 Hard
Learning Objective: APPB-P4
Topic: Future Value of an Annuity

Feedback: Future Value of an Annuity = Annuity * Interest Factor
$69,082 = $5,000 * Interest Factor; Interest Factor = 13.8164
13.8164 is the interest factor on the Future Value of an Annuity
table; i= 7%; n = 10

42. The Masterson family is setting up a vacation fund, and they plan on depositing $1,000
per quarter in an investment that will pay 12% annual interest. What amount will they have
available for their vacation at the end of 2 years?
A. $8,000.00
B. $8,960.00
C. $8,892.30
D. $8,240.00
E. $8,487.20
Answer: C
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium

Learning Objective: APPB-P4
Topic: Future Value of an Annuity

Feedback: Two years = 8 semiannual periods and a 12% annual interest rate =
3% semiannually
The FV factor on the Future Value of an Annuity table when n= 8; i =
3% is 8.8923
Annuity * FV Factor = Future Value of an Annuity
$1,000 * 8.8923 = $8,892.30

Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

B-21


Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

B-22


43. A company needs to have $150,000 in 5 years, and will create a fund to insure that the
$150,000 will be available. If it can earn a 6% return compounded annually, how much must
the company invest in the fund today to equal the $150,000 at the end of 5 years?
A. $141,000
B. $112,095
C. $100,000
D. $45,000
E. $105,000

Answer: B
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium
Learning Objective: APPB-P1
Topic: Present Value of a Single Amount

Feedback: The PV factor on the Present Value of 1 table when n = 5 and i = 6%
is 0.7473
Present Value = Future Value * PV Factor
Present Value = $150,000 * 0.7473 = $112,095

44. Jackson has a loan that requires a $17,000 lump sum payment at the end of four years.
The interest rate on the loan is 5%, compounded annually. How much did Jackson borrow
today?
A. $16,150
B. $13,600
C. $11,504
D. $13,986
E. $15,343
Answer: D
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 2 Medium
Learning Objective: APPB-P1
Topic: Present Value of a Single Amount

Feedback: The PV factor on the Present Value of 1 table when n = 4 and i = 5% is
0.8227
Present Value = Future Value * PV Factor
Present Value = $17,000 * 0.8227 = $13,986

Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.

B-23


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McGraw-Hill Education.

B-24


45. A company has $46,000 today to invest in a fund that will earn 4% compounded annually.
How much will the fund contain at the end of 6 years?
A. $58,204
B. $47,840
C. $58,075
D. $57,040
E. $62,582
Answer: A
Blooms: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making

Difficulty: 2 Medium
Learning Objective: APPB-P2
Topic: Future Value of a Single Amount

Feedback: The FV factor on the Future Value of 1 table when n = 6 and i = 4% is
1.2653
Future Value = Present Value * FV Factor
Future Value = $46,000 *1.2653 = $58,204

Short Essay Questions
46. Define interest.
Answer: Interest represents a borrower’s payment to an owner of an asset in exchange for its
use.
Blooms: Remember
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 1 Easy
Learning Objective: APPB-C1
Topic: Present and Future Value Concepts

47. Explain the concept of the present value of a single amount.
Answer: The present value of a single amount is used to find today’s value for an amount to
be received at a future date. It is equal to the amount that can be invested now at the specified
interest rate to yield the future value.
Blooms: Apply
AACSB: Communication
AICPA BB: Industry
AICPA FN: Decision Making
Difficulty: 3 Hard

Learning Objective: APPB-P1
Topic: Present Value of a Single Amount
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McGraw-Hill Education.

B-25