File: Appendix C Time Value of Money
True/False
[QUESTION]
1. The value of $1 today is worth more than $1 one year from now.
Answer: True
Learning Objective: 0C-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Time Value of Money
[QUESTION]
2. The time value of money is a concept, which means that the value of $1 increases over time.
Answer: False
Feedback: 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.
Learning Objective: 0C-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Time Value of Money
[QUESTION]
3. Simple interest is interest earned on the initial investment only.
Answer: True
Learning Objective: 0C-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Simple Interest
[QUESTION]
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
Feedback: Simple interest = ($500 × 8%) + ($500 × 8%) = $80.
Learning Objective: 0C-01
,Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Calculation of Simple Interest
[QUESTION]
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
Feedback: Simple interest = ($600 × 10%) + ($600 × 10%) = $120.
Learning Objective: 0C-01
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Calculation of Simple Interest
[QUESTION]
6. Compound interest is interest you earn on the initial investment and on previous interest.
Answer: True
Learning Objective: 0C-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Compound Interest
[QUESTION]
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
Feedback: Compound interest = ($200 × 8%) + ($216 × 8%) = $33.28.
Learning Objective: 0C-01
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Calculation of Compound Interest
[QUESTION]
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
,Feedback: ($300 × 10%) + ($330 × 10%) = $63.
Learning Objective: 0C-01
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Calculation of Compound Interest
[QUESTION]
9. Future value is how much an amount today will grow to be in the future.
Answer: True
Learning Objective: 0C-02
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Future Value
[QUESTION]
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
Learning Objective: 0C-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Understand
Topic: Future Value
[QUESTION]
11. Present value indicates how much a present amount of money will grow to in the future.
Answer: False
Feedback: Present value indicates the value today of receiving some larger amount in the future.
Learning Objective: 0C-02
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Present Value
, [QUESTION]
12. The discount rate is the rate at which someone is willing to give up current dollars for future
dollars.
Answer: True
Learning Objective: 0C-02
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Discount Rate
[QUESTION]
13. An annuity is a series of equal cash payments over equal time intervals.
Answer: True
Learning Objective: 0C-03
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Annuity
[QUESTION]
14. The future value of $1,000 invested today for three years that earns 10% compounded
annually is greater than the future value of a $500 annuity with the same interest rate over the
same period.
Answer: False
Feedback: The three-year annuity represents three payments of $500 (= $1,500), so the annuity is
greater.
Learning Objective: 0C-02
Learning Objective: 0C-03
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Future Value of a Single Amount
Topic: Future Value of an Annuity
True/False
[QUESTION]
1. The value of $1 today is worth more than $1 one year from now.
Answer: True
Learning Objective: 0C-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Time Value of Money
[QUESTION]
2. The time value of money is a concept, which means that the value of $1 increases over time.
Answer: False
Feedback: 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.
Learning Objective: 0C-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Time Value of Money
[QUESTION]
3. Simple interest is interest earned on the initial investment only.
Answer: True
Learning Objective: 0C-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Simple Interest
[QUESTION]
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
Feedback: Simple interest = ($500 × 8%) + ($500 × 8%) = $80.
Learning Objective: 0C-01
,Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Calculation of Simple Interest
[QUESTION]
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
Feedback: Simple interest = ($600 × 10%) + ($600 × 10%) = $120.
Learning Objective: 0C-01
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Calculation of Simple Interest
[QUESTION]
6. Compound interest is interest you earn on the initial investment and on previous interest.
Answer: True
Learning Objective: 0C-01
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Compound Interest
[QUESTION]
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
Feedback: Compound interest = ($200 × 8%) + ($216 × 8%) = $33.28.
Learning Objective: 0C-01
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Calculation of Compound Interest
[QUESTION]
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
,Feedback: ($300 × 10%) + ($330 × 10%) = $63.
Learning Objective: 0C-01
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Calculation of Compound Interest
[QUESTION]
9. Future value is how much an amount today will grow to be in the future.
Answer: True
Learning Objective: 0C-02
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Future Value
[QUESTION]
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
Learning Objective: 0C-02
Difficulty: Medium
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Understand
Topic: Future Value
[QUESTION]
11. Present value indicates how much a present amount of money will grow to in the future.
Answer: False
Feedback: Present value indicates the value today of receiving some larger amount in the future.
Learning Objective: 0C-02
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Present Value
, [QUESTION]
12. The discount rate is the rate at which someone is willing to give up current dollars for future
dollars.
Answer: True
Learning Objective: 0C-02
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Discount Rate
[QUESTION]
13. An annuity is a series of equal cash payments over equal time intervals.
Answer: True
Learning Objective: 0C-03
Difficulty: Easy
AACSB: Reflective Thinking
AICPA: BB Critical Thinking
Blooms: Remember
Topic: Annuity
[QUESTION]
14. The future value of $1,000 invested today for three years that earns 10% compounded
annually is greater than the future value of a $500 annuity with the same interest rate over the
same period.
Answer: False
Feedback: The three-year annuity represents three payments of $500 (= $1,500), so the annuity is
greater.
Learning Objective: 0C-02
Learning Objective: 0C-03
Difficulty: Hard
AACSB: Analytic
AICPA: FN Measurement
Blooms: Analyze
Topic: Future Value of a Single Amount
Topic: Future Value of an Annuity
