1. One type of compensation provided by the time value of money is compensation for expected inflation True False 2. The interest that accrues on both the principal and the past unpaid accrued interest is called compound interest True False 1 PV = FVX (1+1)" 3. The formula to compute the present value of a dollar is 1 4. The present value of an amount decreases as the discount rate increases. True False 5. An ordinary annuity is if the cash flows occur on the first day of each period. True False 6. The future value of an annuity due is lower if the discount rate is higher. I True False 7. FASB's Statement of Financial Accounting Concepts No. 7 provides general principles governing the use of present value and the objectives of present value accounting measurements. True False 8. Interest calculated on the original principal regardless of the number of time periods that have passed or the amount of interest that has been paid or accrued in the past is compound interest. simple interest present value of future cash flows. future value of a single sum. 9. Simple interest on a $25,000, 8%, 18-month note is $22,000 C $23,000 $3,000. $2,000 10. Interest compounded quarterly on a $100,000 principal amount at 12% for one year is $11,151 $12,000. $12,551. C $12,683 11. The future value of $50,000 deposited today and compounded quarterly at an 8% annual interest rate for seven years is I $57,434. $87,051. 585,691 $78,000 12. The present value of $500,000 received at the end of five years discounted at 10% is $805,255. $310,461 $306,957 none of these 13. Margaret will receive an insurance settlement of $3,000,000 in five years. Randall is willing to give her a lump sum today in return for the payment in five years. If current interest rates are 12% per year, how much will Margaret receive today? 5960,637 $1.702,281 c $1,116,790 $1,800,000 14. All of the following are conditions for an ordinary annuity except periodic cash flows must be equal in amount the time periods between the cash flows are the same length the interest rate is constant for each time period interest is compounded in the middle of each time period 15. Currently in August, 2021), Abby wants to have $20,000 available in August 2025 to make a college tuition payment. To be able to have this amount available, Abby will rzake equal annual deposits in an investment account carning 12% annually in August 2021,2022 2023 2024, and 2025. What is the annual amount to be deposited? $5,548 $4,000 $3,148 $2,270 16. Jessie's Dry Cleaner began making $2,000 equal, annual deposits in a fund starting on January 2, 2020. The fund earns 10% compounded annually, and the last deposit is made on January 2, 2024. How much will be in the fund on January 2, 2025, one year after the final deposit? $15,000 c $13,431 $12,105 MacBook Air 17. You would like to deposit a sum of money today that would enable you to withdraw $2,000 a year for ten years. If the interest paid on the amount deposited is 10% compounded annually and if the first withdrawal is made one year from today, the formula you would use to determine the amount of the initial deposit is the present value of a deferred annuity present value of an annuity due, present value of an ordinary annuity future value of an ordinary annuity, 18. On July 7, 2020, Lawrence Company sold some machinery to Johnson Construction Company. The sales contract requires Johnson to pay five equal annual payments of $75,000 each, beginning on July 7, 2020. What present value concept is most appropriate for this situation? present value of an annuity due of 1 for five periods present value of an ordinary annuity of $1 for five periods future value of an annuity of $1 for five periods future value of $1 for five periods c 19. Samuel just inherited an annuity. He will receive six equal annuairpayments of $18,000, beginning today. Assuming a 10% interest rate compounded annually, the present value today of all receipts is C $64,886. $78,395. $86,234. $75,058 EXTRA CREDIT OPTIONAL COMPLETION 20. Bunsen Company is involved in a consumer liability lawsuit. Company attorneys have assessed the contingent outcomes of the lawsuit. Because the attorneys think the company will probably lose the lawsuit, To prepare for this loss, Bunsen management has decided to set aside funds in an investment account that earns a 9% return rate. Furthermore, there is general agreement that there is a