Time Value of Money:

q1: A non interest-bearing note that pays $5,000 three years from today is issued in exchange for used equipment. If the discount rate appropriate for such notes is 8% per annum, the entry to record the issue of a note for the used equipment on our books would include a:

a. Cr Discount on Note Payable $1,031

b. Cr Note Payable $3,969

c. None of the other alternatives are correct

d. Dr Used Equipment $5,000

e. Dr Discount on Note Payable $1,031

q2: What number of periods and rate per compounding period would you use from the Tables if provided with the following situation:

i. 12% per annum, for 5 years, compounded annually

ii. 12% per annum, for 5 years, compounded quarterly

a. ii) n = 5, r = 48%, i) n = 5, r = 12%

b. i) n = 5, r = 12% and ii) n = 20, r = 3%

c. ii) n = 5, r = 12% and i) n = 20, r = 3%

d. i) n = 5, r = 6% and ii) n = 5, r = 3%

e. i) n = 5, r = 12% and ii) n = 20, r = 48%

q3: If 8% is compounded monthly for 3 years then the number of periods used in a time-value money calculation would be

a. 24 periods

b. 12 periods

c. None of the other alternatives are correct

d. 3 periods

e. 18 periods

q4: Which of the following concepts is true regarding the time value of money?

Present value represents the current value of a future amount of money given a specified rate of return.

II) When time periods are less than one year, the time value of money may be ignored.

III) When time periods are longer than one year, assets and liabilities are valued at the present value of future payments.

IV) When the present value is more than the amount which will ultimately be paid/received, the difference is called a "discount".

a, All of the above statements are true

b. All of the above statements are false

c. I, II and III are true but IV is false

d. I and II only are true

e. I and IV only are true

q5: Which of the following statements is true?

a. When time periods are short (less than one year) the time value of money is essential to consider

b. When time periods are short (less than one year) the time value of money is usually ignored

c. None of the other alternatives are correct

d. Money grows linearly with compound interest

e. As time passes, the amount in the Discount account, which is the result of the present value being less than the amount which will ultimately be f. paid in the future, increases

q6: If you set yourself a goal of investing X amount today, earning interest at 5%, in order to withdraw $10,000 at the end of each year for the next three years, how much is X?

a. $30,000

b. $27,232

c. None of the other alternatives are correct

d. Between $25,000 and $26,000

e. $31,525

q7: Nancy borrows $50,000 from the Mighty Bank today and the Bank requests her to repay her loan in four equal payments along with 12% interest. Each of the four payments must be paid at the end of the next two years. What is the amount of each payment? Please round to the nearest whole number.

a. $23,810 plus 12% interest

b. None of the other alternatives are correct

c. $29,584 plus 12% interest

d. $23,810

e. $29,584

q8: If you borrowed $1,500 for a 5 year period, with a simple interest rate of 10% per annum, the total interest to be paid would be

a. $750

b. $1,000

c. $1,500

d. $1,250

e. None of the other alternatives are correct

q9: If 8% is compounded quarterly for 2 years then the number of periods used in a time-value money calculation would be

a. 8 periods

b. 3 periods

c. None of the other alternatives are correct

d. 12 periods

e. 4 periods

q10: The Toronto Cancer Society needs $70,000 for the purchase of a new cancer treatment piece of equipment in four years. If The Toronto Cancer Society is able to deposit $47,811 at the beginning of this year, what rate of interest - compounded annually - must The Toronto Cancer Society receive to fund the purchase of this piece of equipment in four years?

a. 11%

b. 9%

c. 7%

d. 8%

e. 10%