A series of equal periodic payments in which the first payment is made one compounding period after the date of the contract is ________.

A. a deferred annuity B. a compound annuity C. an annuity due D. an ordinary annuity

Interest calculated on the original principal regardless of the amount of interest that has been paid or accrued in the past is ________.

A. simple interest B. compound interest C. original interest D. principal interest

Which of the following transactions would best use the present value of an annuity due of 1 table?

A. Ponzi, Inc. borrows $40,000 and has agreed to pay back the principal plus interest in three years.

B. Skool, Inc. wants to deposit a lump sum to accumulate $80,000 for the construction of a new parking lot in 4 years.

C. Bengatti, Inc. leases a truck for 5 years with annual lease payments of $20,000 to be made at the beginning of each year.

D. Turkel Co. leases a warehouse for 7 years with annual lease payments of $120,000 to be made at the end of each year.

Suppose you borrow money from your parents for college tuition on January 1, 2015. Your parents require four annual payments of $10,000 each, with the first payment due on January 1, 2019. They are charging you 6% annual interest. What is the cost of the college tuition?

A. $40,000 B. $27,447 C. $15,939 D. $29,094

What is the market price of a $500,000, tenyear, 12% bond issue sold to yield an effective rate of 10% if interest is paid semiannually?

A. $562,312 B. $566,635 C. $425,306 D. $442,650

The parents of a recent high school graduate decides to invest the $5,000 he received for her high school graduation in a fund earning 10% annual interest. At the end of the fouryear period, she expects to withdraw the money to pay for accumulated college tuition loans. What is the approximate amount that would be available for withdrawal after five years if interest is compounded monthly?

A. $8,050 B. $8,225 C. $7,500 D. $5,500

Fanagi Corp. borrowed $58,000 from its bank at a 6% annual interest rate and will repay $250,000. Assume annual compounding. In approximately how many years will Fanagi repay the loan?

A. 23 years B. 19 years C. 25 years D. 5 years

The relationship between a future value and its corresponding present value is determined by two variables. What are those two variables?

A. conversion rate; number of compounding periods

B. discount rate; length of compounding periods

C. conversion rate; length of compounding periods

D. discount rate; number of compounding periods

Terry Brown purchases a used car and agreed to pay $200 per month for twoandahalf years with the first payment due at the end of the first month. What was the purchase price of the car assuming an annual rate of 12%?

A. $5,357 B. $5,628 C. $4,910 D. $5,162

Determining the present value of one or more future amounts is known as ________.

A. inverting B. discounting C. compounding D. annuitizing

Bobby's parents loaned him $80,000 to fund his college education. His parents are not charging interest. They desire to be paid one lump sum of $80,000 when Bobby can accumulate that amount. Bobby established a savings plan that earns 8% compounded annually. His new job promises to pay an annual holiday bonus that will enable him to make equal annual, yearend deposits of $6,400 starting next year. Approximately how many years will it take Bobby to accumulate the $80,000?

A. 9 years B. 12.5 years C. 10 years D. 8 years

Which of the following situations does not use an accounting measure based on present values?

A. patents B. bonds C. pensions D. leases

Potash Corporation financed the purchase of a building by making semiannual payments of $20,000 for the next twenty years, with the first payment due six months from today. The purchase cost of the building is considered to be the present value of those payments. What was the purchase cost of the building to Potash assuming an annual interest rate of 10%?

A. $343,182 B. $192,883 C. $363,636 D. $170,271

You decide to deposit $2,000 at a local bank for two years at a 7% rate of interest compounded annually. What is the future value of your investment?

A. $2,290 B. $2,280 C. $2,028 D. $2,014

Which of the following statements is true?

A. The process of accumulating interest on interest is referred to as discounting.

B. If interest is 10% compounded annually, $1,100 due one year from today is equivalent to $1,000 today.

C. The higher the discount rate, the higher the present value.

D. If interest is 12% compounded annually, $1,200 due one year from today is equivalent to $1,000 today.

When payments take place at the beginning of the period, the series of cash flows is called ________.

A. posterior annuity B. annuity due C. anterior annuity D. ordinary annuity

Zendor Company wants to have $200,000 available in August 2021 to make an equipment purchase. To be able to have this amount available, Zendor will make equal annual deposits in an investment account earning 12% annually in June 2017, 2018, 2019, 2020, and 2021. What is the dollar amount that must be deposited each of those years to achieve this objective?

A.$40,000 B. $22,700 C. $31,480 D. $55,480

You have discovered an investment opportunity that earns a 6% rate of interest compounded semiannually. What amount should you deposit today to have $5,000 in three years?

A. $4,237 B. $3,832 C. $4,100 D. $4,187

Baxter desires to purchase an annuity on January 1, 2014, that yields him five annual cash flows of $10,000 each, with the first cash flow to be received on January 1, 2017. The interest rate is 10% compounded annually. The cost (present value) of the annuity on January 1, 2014, is ________.

A. $37,908 B. $34,462 C. $31,329 D. $48,684