, APPENDIX D
TIME VALUE OF MONEY
SUMMARY OF QUESTIONS BY LEARNING OBJECTIVES AND BLOOM’S TAXONOMY
Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT
True-False Statements
1. 1 K 5. 2 K 9. 4 K 13. 6 K 17. 7 K
2. 1 K 6. 2 K 10. 4 K 14. 6 K 18. 7 C
3. 1 K 7. 3 K 11. 5 K 15. 6 K 19. 7 K
4. 1 K 8. 3 K 12. 5 K 16. 6 K 20. 7 K
Multiple Choice Questions
21. 1 K 33. 3 AP 45. 5 AP 57. 5 AP 69. 6 AP
22. 1 K 34. 3 AP 46. 5 AP 58. 5 AP 70. 7 AP
23. 1 AP 35. 3 K 47. 5 K 59. 5 AP 71. 7 AP
24. 1 C 36. 3 AP 48. 5 AP 60. 5 AP 72. 7 K
25. 2 AP 37. 3 C 49. 5 AP 61. 6 AP 73. 7 K
26. 2 AP 38. 3 AP 50. 5 AP 62. 6 AP 74. 7 K
27. 2,3 AP 39. 3 K 51. 5 C 63. 6 AP 75. 7 K
28. 2 K 40. 4 K 52. 5 AP 64. 6 AP 76. 7 AP
29. 2 AP 41. 4 K 53. 5 AP 65. 6 K 77. 7 AP
30. 2 K 42. 4 K 54. 5 AP 66. 7 AP 78. 7 AP
31. 2 K 43. 5 AP 55. 5 AP 67. 6 AP 79. 7 AP
32. 2 AP 44. 5 AP 56. 5 AP 68. 6 AP
Brief Exercises
80. 2 AP 84. 3 AP 88. 5 AP 92. 6,7 AP 96. 7 AP
81. 2 AP 85. 3 AP 89. 5 AP 93. 6,7 AP 97. 7 AP
82. 2,3 AP 86. 5 AP 90. 6 AP 94. 7 AP
83. 2,3 AP 87. 5 AP 91. 6 AP 95. 7 AP
Completion Statements
98. 1 K 100. 3 K 102. 4 K 104. 6 K
99. 2 K 101. 3 K 103. 5 K 105. 7 K
Matching
106. 1-6 K
SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE
Learning Objective 1
Item Type Item Type Item Type Item Type Item Type Item Type
1. TF 3. TF 21. MC 23. MC 98. C
2. TF 4. TF 22. MC 24. MC
Learning Objective 2
5. TF 26. MC 29. MC 32. MC 82. Be 99. C
6. TF 27. MC 30. MC 80. Be 83. Be
25. MC 28. MC 31. MC 81. Be
Learning Objective 3
7. TF 33. MC 36. MC 39. MC 84. Be 101. C
8. TF 34. MC 37. MC 82. Be 85. Be
27. MC 35. MC 38. MC 83. Be 100. C
FOR INSTRUCTOR USE ONLY
,D-2 Test Bank for Financial Accounting: Tools for Business Decision Making, Seventh Edition
Learning Objective 4
Item Type Item Type Item Type Item Type Item Type Item Type
9. TF 10. TF 40. MC 41. MC 42. MC 102. C
Learning Objective 5
11. TF 46. MC 51. MC 56. MC 86. Be
12. TF 47. MC 52. MC 57. MC 87. Be
43. MC 48. MC 53. MC 58. MC 88. Be
44. MC 49. MC 54. MC 59. MC 89. Be
45. MC 50. MC 55. MC 60. MC 103. C
Learning Objective 6
13. TF 16. TF 63. MC 66. MC 69. MC 92. Be
14. TF 61. MC 64. MC 67. MC 90. Be 93. Be
15. TF 62. MC 65. MC 68. MC 91. Be
Learning Objective 7
17. TF 70. MC 74. MC 78. MC 96. Be
18. TF 71. MC 75. MC 79. MC 97. Be
19. TF 72. MC 76. MC 94. Be 105. C
20. TF 73. MC 77. MC 95. Be
Note: TF = True-False C = Completion
MC = Multiple Choice Ex = Exercise
Ma = Matching
CHAPTER LEARNING OBJECTIVES
1. Distinguish between simple and compound interest. Simple interest is computed on the
principal only while compound interest is computed on the principal and any interest earned
that has not been withdrawn.
2. Solve for future value of a single amount. Prepare a time diagram of the problem. Identify
the principal amount, the number of compounding periods, and the interest rate. Using the
future value of 1 table, multiply the principal amount by the future value factor specified at the
intersection of the number of periods and the interest rate.
3. Solve for future value of an annuity. Prepare a time diagram of the problem. Identify the
amount of the periodic payments, the number of compounding periods, and the interest rate.
Using the future value of an annuity of 1 table, multiply the amount of the payments by the
future value factor specified at the intersection of the number of periods and the interest rate.
4. Identify the variables fundamental to solving present value problems. The following
three variables are fundamental to solving present value problems: (1) the future amount, (2)
the number of periods, and (3) the interest rate (the discount rate).
5. Solve for present value of a single amount. Prepare a time diagram of the problem.
Identify the future amount, the number of discounting periods, and the discount (interest) rate.
Using the present value of a single amount table, multiply the future amount by the present
value factor specified at the intersection of the number of periods and the discount rate.
FOR INSTRUCTOR USE ONLY
, Time Value of Money D-3
6. Solve for present value of an annuity. Prepare a time diagram of the problem. Identify the
amount of future periodic receipts or payment (annuities), the number of discounting periods,
and the discount (interest) rate. Using the present value of an annuity of 1 table, multiply the
amount of the annuity by the present value factor specified at the intersection of the number
of periods and the interest rate.
7. Compute the present value of notes and bonds. Determine the present value of the
principal amount: Multiply the principal amount (a single future amount) by the present value
factor (from the present value of 1 table) intersecting at the number of periods (number of
interest payments) and the discount rate. Determine the present value of the series of interest
payments: Multiply the amount of the interest payment by the present value factor (from the
present value of an annuity of 1 table) intersecting at the number of periods (number of
interest payments) and the discount rate. Add the present value of the principal amount to the
present value of the interest payments to arrive at the present value of the note or bond.
TRUE-FALSE STATEMENTS
1. Interest is the difference between the amount borrowed and the principal.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Investment Decisions
2. Compound interest is computed on the principal and any interest earned that has not
been withdrawn.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Investment Decisions
3. The amount of interest involved in any financing transaction is based on two elements,
principal and interest rate.
Ans: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Investment Decisions
4. Compound interest uses the accumulated balance—principal plus interest to date—at
each year-end to compute interest in the succeeding year.
Ans: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Investment Decisions
5. The formula for the future value of a single amount is p × (1 + i)/n.
Ans: F, LO: 2, Bloom: K, Difficulty: Medium, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC:
None, IMA: Investment Decisions
6. The future value of a single amount is the value at a future date of a given amount
invested assuming compound interest.
Ans: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Investment Decisions
7. When the periodic payments are not equal in each period, the future value can be
computed by using a future value of an annuity of 1 table.
Ans: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None,
IMA: Investment Decisions
FOR INSTRUCTOR USE ONLY
