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Financial Accounting 4Th Edition by David Spiceland - Test Bank
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,File: Appendix C Time Value of MoneyTrue or False
[QUESTION]
1. The value of $1 today is worth more than $1 one year from now.
Answer: True
Difficulty: 1 Easy
Learning Objective: C-01 Contrast simple and compound interest.
Topic: Simple Versus Compound Interest
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
[QUESTION]
2. The time value of money is a concept, which means that the value of $1 increases over time.
Answer: False
Difficulty: 1 Easy
Learning Objective: C-01 Contrast simple and compound interest.
Topic: Simple Versus Compound Interest
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Feedback: Time value of money means that interest causes the value of money received today to
be greater than the value of that same amount of money received in the future.
[QUESTION]
3. Simple interest is interest earned on the initial investment only.
Answer: True
Difficulty: 1 Easy
Learning Objective: C-01 Contrast simple and compound interest.
Topic: Simple Versus Compound Interest
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
[QUESTION]
4. If you put $500 into a savings account that pays simple interest of 8% per year and then
withdraw the money two years later, you will earn interest of $80.
Answer: True
Difficulty: 3 Hard
Learning Objective: C-01 Contrast simple and compound interest.
App C-1
© 2016 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor
use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated,
forwarded, distributed, or posted on a website, in whole or part.
,Topic: Simple Versus Compound Interest
Blooms: Analyze
AACSB: Analytical Thinking
AICPA: FN Measurement
Feedback: Simple interest = ($500 8%) + ($500 8%) = $80.
[QUESTION]
5. If you put $600 into a savings account that pays simple interest of 10% per year and then
withdraw the money two years later, you will earn interest of $126.
Answer: False
Difficulty: 3 Hard
Learning Objective: C-01 Contrast simple and compound interest.
Topic: Simple Versus Compound Interest
Blooms: Analyze
AACSB: Analytical Thinking
AICPA: FN Measurement
Feedback: Simple interest = ($600 10%) + ($600 10%) = $120.
[QUESTION]
6. Compound interest is interest you earn on the initial investment and on previous interest.
Answer: True
Difficulty: 1 Easy
Learning Objective: C-01 Contrast simple and compound interest.
Topic: Simple Versus Compound Interest
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
[QUESTION]
7. If you put $200 into a savings account that pays annual compound interest of 8% per year and
then withdraw the money two years later, you will earn interest of $32.
Answer: False
Difficulty: 3 Hard
Learning Objective: C-01 Contrast simple and compound interest.
Topic: Simple Versus Compound Interest
Blooms: Analyze
AACSB: Analytical Thinking
AICPA: FN Measurement
Feedback: Compound interest = ($200 8%) + ($216 8%) = $33.28.
[QUESTION]
8. If you put $300 into a savings account that pays annual compound interest of 10% per year
and then withdraw the money two years later, you will earn interest of $63.
App C-2
© 2016 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor
use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated,
forwarded, distributed, or posted on a website, in whole or part.
, Answer: True
Difficulty: 3 Hard
Learning Objective: C-01 Contrast simple and compound interest.
Topic: Simple Versus Compound Interest
Blooms: Analyze
AACSB: Analytical Thinking
AICPA: FN Measurement
Feedback: ($300 10%) + ($330 10%) = $63.
[QUESTION]
9. Future value is how much an amount today will grow to be in the future.
Answer: True
Difficulty: 1 Easy
Learning Objective: C-02 Calculate the future value and present value of a single amount.
Topic: Time Value of a Single Amount
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
[QUESTION]
10. The more frequent the rate of compounding, the more interest that is earned on previous
interest, resulting in a higher future value.
Answer: True
Difficulty: 2 Medium
Learning Objective: C-02 Calculate the future value and present value of a single amount.
Topic: Time Value of a Single Amount
Blooms: Understand
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
[QUESTION]
11. Present value indicates how much a present amount of money will grow to in the future.
Answer: False
Difficulty: 1 Easy
Learning Objective: C-02 Calculate the future value and present value of a single amount.
Topic: Time Value of a Single Amount
Blooms: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Feedback: Present value indicates the value today of receiving some larger amount in the future.
App C-3
© 2016 by McGraw-Hill Global Education Holdings, LLC. This is proprietary material solely for authorized instructor
use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated,
forwarded, distributed, or posted on a website, in whole or part.
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