Test Bank for Financial Accounting, 5th Edition
Fina ncial Accounting, 5e (Spiceland)
Appendix C: Time Value of Money
1) The value of $1 today is worth more than $1 one year from now.
Answer: TRUE
Difficulty: 1 Easy
Topic: Simple Versus Compound Interest
Learning Objective: C-01 Contrast sim...
2) The time value of money is a concept, which means that the value of $1 increases over time.
Answer: FALSE
Explanation: 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.
Difficulty: 1 Easy
Topic: Simple Versus Compound Interest
Learning Objective: C-01 Contrast simple and compound interest.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking/Keyboard Navigation
3) Simple interest is interest earned on the initial investment only.
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.
,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.
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.
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.
, 9) Future value is how much an amount today will grow to be in the future.
Answer: TRUE
Difficulty: 1 Easy
Topic: Future Value of a Single Amount
Learning Objective: C-02 Calculate the future value and present value of a single amount.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking/Keyboard Navigation
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
Topic: Future Value of a Single Amount
Learning Objective: C-02 Calculate the future value and present value of a single amount.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking/Keyboard Navigation
11) Present value indicates how much a present amount of money will grow to in the future.
Answer: FALSE
Explanation: Present value indicates the value today of receiving some larger amount in the
future.
Difficulty: 1 Easy
Topic: Present Value of a Single Amount
Learning Objective: C-02 Calculate the future value and present value of a single amount.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking/Keyboard Navigation
12) The discount rate is the rate at which someone is willing to give up current dollars for future
dollars.
Answer: TRUE
Difficulty: 1 Easy
Topic: Present Value of a Single Amount
Learning Objective: C-02 Calculate the future value and present value of a single amount.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking/Keyboard Navigation
4
.
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller myleet7. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $11.99. You're not tied to anything after your purchase.
