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Financial and Managerial Accounting Jan Williams 18e
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,Financial and Managerial Accounting, 18e WilliamsChapter 27 Appendix B: The Time Value of Money: Future Amounts and Present Values
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.
Answer: FALSE
Difficulty: 1 Easy
Topic: The Concept
Learning Objecti: B-01 Explain what is meant by the phrase time value of money.; B-02
Describe the relationships between present values and future amounts.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) The present value of an ordinary annuity is the amount that equal payments made at the
end of successive equal periods is worth today.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Concept
Learning Objecti: B-01 Explain what is meant by the phrase time value of money.; B-02
Describe the relationships between present values and future amounts.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3) The future value of an investment gradually increases toward the present amount.
Answer: FALSE
Difficulty: 2 Medium
Topic: The Concept
Learning Objecti: B-02 Describe the relationships between present values and future amounts.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4) Compounding interest assumes the interest on an investment is reinvested.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Concept
Learning Objecti: B-01 Explain what is meant by the phrase time value of money.; B-02
Describe the relationships between present values and future amounts.
Bloom's: Remember
AACSB: Analytical Thinking
1
Copyright © 2018 McGraw-Hill
,5) Discounting a future amount of a cash receipt will determine the present value of that
receipt.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Concept
Learning Objecti: B-02 Describe the relationships between present values and future amounts.
Bloom's: Remember
AACSB: Analytical Thinking
6) The lower the discount rate of an investment, the lower the present value of the
investment.
Answer: FALSE
Difficulty: 2 Medium
Topic: The Concept
Learning Objecti: B-01 Explain what is meant by the phrase time value of money.; B-02
Describe the relationships between present values and future amounts.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
7) Annuities may provide equal amounts to an investor at fixed periods of time over the life
of an investment.
Answer: TRUE
Difficulty: 1 Easy
Learning Objecti: B-01 Explain what is meant by the phrase time value of money.; B-02
Describe the relationships between present values and future amounts.
Bloom's: Remember
AACSB: Analytical Thinking
8) The market price of a bond is equal to its present value.
Answer: TRUE
Difficulty: 1 Easy
Topic: Applications of the Time Value of Money Concept; Valuation of Financial Instruments
Learning Objecti: B-03 Explain three basic ways in which decision makers apply the time value
of money.; B-06 Discuss accounting applications of the concept of present value.
Bloom's: Remember
AACSB: Analytical Thinking
2
Copyright © 2018 McGraw-Hill
, 9) An annuity due assumes the cash flow will occur at the beginning of the period.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Concept; Applications of the Time Value of Money Concept
Learning Objecti: B-02 Describe the relationships between present values and future amounts.;
B-03 Explain three basic ways in which decision makers apply the time value of money.
Bloom's: Remember
AACSB: Analytical Thinking
10) The rate of interest is usually expressed as an annual rate.
Answer: TRUE
Difficulty: 1 Easy
Topic: The Concept
Learning Objecti: B-01 Explain what is meant by the phrase time value of money.
Bloom's: Remember
AACSB: Analytical Thinking
11) An interest rate of 12% a year is the same as 6% for 2 months.
Answer: FALSE
Difficulty: 2 Medium
Topic: The Concept
Learning Objecti: B-01 Explain what is meant by the phrase time value of money.; B-02
Describe the relationships between present values and future amounts.
Bloom's: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
12) The obligation for deferred income taxes is the only long-term liability that is not
reported at its present value.
Answer: TRUE
Difficulty: 1 Easy
Topic: Valuation of Financial Instruments
Learning Objecti: B-06 Discuss accounting applications of the concept of present value.
Bloom's: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3
Copyright © 2018 McGraw-Hill
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