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Financial Accounting 5Th Ed by David Spiceland - Test Bank
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,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 simple and compound interest.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: BB Critical Thinking/Keyboard Navigation
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.
Answer: TRUE
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
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.
Answer: TRUE
Explanation: Simple interest = ($500 × 8%) + ($500 × 8%) = $80.
Difficulty: 3 Hard
Topic: Simple Versus Compound Interest
Learning Objective: C-01 Contrast simple and compound interest.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement/Keyboard Navigation
1
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
,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.
Answer: FALSE
Explanation: Simple interest = ($600 × 10%) + ($600 × 10%) = $120.
Difficulty: 3 Hard
Topic: Simple Versus Compound Interest
Learning Objective: C-01 Contrast simple and compound interest.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement/Keyboard Navigation
6) Compound interest is interest you earn on the initial investment and on previous interest.
Answer: TRUE
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
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.
Answer: FALSE
Explanation: Compound interest = ($200 × 8%) + ($216 × 8%) = $33.28.
Difficulty: 3 Hard
Topic: Simple Versus Compound Interest
Learning Objective: C-01 Contrast simple and compound interest.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement/Keyboard Navigation
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.
Answer: TRUE
Explanation: ($300 × 10%) + ($330 × 10%) = $63.
Difficulty: 3 Hard
Topic: Simple Versus Compound Interest
Learning Objective: C-01 Contrast simple and compound interest.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement/Keyboard Navigation
2
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
, 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
3
Copyright © 2019 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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