Test Bank for Financial Accounting
Compound Interest - ANSWERSWhen interest is earned on interest in a savings account in a
bank.
Time value of money - ANSWERSA dollar received today is worth more than a dollar received
two years ago.
Financial calculator - ANSWERSThe interest rate on a financial calculator to be inputted using
the I/Yr key means to enter the rate per period.
Compounding - ANSWERSIf an investment is made that pays 5% annual interest for a 3-year
period with semiannual compounding, the number of periods is 6.
Installment loans - ANSWERSInstallment loans require a series of equal payments that often
vary in the time period between each payment.
Bond valuation - ANSWERSThere are two cash flows associated with bonds—a balloon payment
and periodic interest payments.
Bond pricing - ANSWERSTJ Services issued bonds with a face value of $5,000,000 and a coupon
rate of 4% paid semiannually for 5 years.
Market value of bonds - ANSWERSThe market value of the bonds is $5,230,555.
Time value of money (future) - ANSWERSFunds can be invested in earning assets to yield a
positive return.
,Future value calculation - ANSWERSIf an investor invests $2,500,000 today at 4% interest
compounded semiannually, the amount in the bank account two years from the date invested is
$2,706,080.
Bond pricing (Geoglyph Industries) - ANSWERSGeoglyph Industries issued bonds with a face
value of $10,000,000 and a coupon rate of 4% paid semiannually for 5 years.
Market value of Geoglyph bonds - ANSWERSThe market value of the bonds is $9,562,397.
Interest payment calculation - ANSWERSInterest payment = Face value × Coupon rate × 1/2.
Number of periods (N) - ANSWERSN = 10 (5 years * 2).
Interest rate per period (I/Y) - ANSWERSI/Y = 1.5 (3% / 2).
Present value (PV) - ANSWERSPV is calculated using the formula involving future value, interest
rate, and number of periods.
Future Value (FV) - ANSWERSFV is the amount of money accumulated after n years, including
interest.
Semiannual compounding - ANSWERSCompounding that occurs twice a year.
Balloon payment - ANSWERSThe principal due when the bond matures.
Periodic interest payments - ANSWERSInterest payments that are most often paid semiannually.
Investment return - ANSWERSThe return generated from investing money received today.
,Equal payments - ANSWERSInstallment notes have equal payments on a periodic basis.
Investment duration - ANSWERSThe length of time an investment is held.
Market rate of interest - ANSWERSThe rate of interest prevailing in the market.
PMT - ANSWERS200,000
FV - ANSWERS10,000,000
PV - ANSWERS$9,562,397
Interest Payment - ANSWERS$10,000,000 × 4% × 1/2 = $200,000
N - ANSWERS8 (4*2)
I/Y - ANSWERS2.5 (5% /2)
Present Value of a Single Cash Payment - ANSWERSFuture value ÷ (1 + discount rate)
Saucy, Inc. Investment - ANSWERS$1,113,706
N for Saucy, Inc. - ANSWERS20 (5*4)
I/Y for Saucy, Inc. - ANSWERS1.5 (6%/4)
, Monthly Deposit for Saucy, Inc. - ANSWERS$38,133
N for Monthly Deposit - ANSWERS36 (3*12)
I/Y for Monthly Deposit - ANSWERS0.5 (6%/12)
Salbador Motor Company PV - ANSWERS$1,492,431
Salbador Motor Company PV (Semiannual) - ANSWERS$1,487,112
Quarterly Deposit for Salbador Motor Company - ANSWERS$85,270
N for Quarterly Deposit - ANSWERS16 (4 * 4)
I/Y for Quarterly Deposit - ANSWERS1.25 (5% /4)
Colt Co. Required Accumulation - ANSWERS$250 million
Colt Co. Initial Deposit - ANSWERS$200 million
N for Colt Co. - ANSWERS8 (4*2)
I/Y for Colt Co. - ANSWERS3 (6% /2)
Installment note - ANSWERSA loan to be repaid monthly over a specified period.
Compound Interest - ANSWERSWhen interest is earned on interest in a savings account in a
bank.
Time value of money - ANSWERSA dollar received today is worth more than a dollar received
two years ago.
Financial calculator - ANSWERSThe interest rate on a financial calculator to be inputted using
the I/Yr key means to enter the rate per period.
Compounding - ANSWERSIf an investment is made that pays 5% annual interest for a 3-year
period with semiannual compounding, the number of periods is 6.
Installment loans - ANSWERSInstallment loans require a series of equal payments that often
vary in the time period between each payment.
Bond valuation - ANSWERSThere are two cash flows associated with bonds—a balloon payment
and periodic interest payments.
Bond pricing - ANSWERSTJ Services issued bonds with a face value of $5,000,000 and a coupon
rate of 4% paid semiannually for 5 years.
Market value of bonds - ANSWERSThe market value of the bonds is $5,230,555.
Time value of money (future) - ANSWERSFunds can be invested in earning assets to yield a
positive return.
,Future value calculation - ANSWERSIf an investor invests $2,500,000 today at 4% interest
compounded semiannually, the amount in the bank account two years from the date invested is
$2,706,080.
Bond pricing (Geoglyph Industries) - ANSWERSGeoglyph Industries issued bonds with a face
value of $10,000,000 and a coupon rate of 4% paid semiannually for 5 years.
Market value of Geoglyph bonds - ANSWERSThe market value of the bonds is $9,562,397.
Interest payment calculation - ANSWERSInterest payment = Face value × Coupon rate × 1/2.
Number of periods (N) - ANSWERSN = 10 (5 years * 2).
Interest rate per period (I/Y) - ANSWERSI/Y = 1.5 (3% / 2).
Present value (PV) - ANSWERSPV is calculated using the formula involving future value, interest
rate, and number of periods.
Future Value (FV) - ANSWERSFV is the amount of money accumulated after n years, including
interest.
Semiannual compounding - ANSWERSCompounding that occurs twice a year.
Balloon payment - ANSWERSThe principal due when the bond matures.
Periodic interest payments - ANSWERSInterest payments that are most often paid semiannually.
Investment return - ANSWERSThe return generated from investing money received today.
,Equal payments - ANSWERSInstallment notes have equal payments on a periodic basis.
Investment duration - ANSWERSThe length of time an investment is held.
Market rate of interest - ANSWERSThe rate of interest prevailing in the market.
PMT - ANSWERS200,000
FV - ANSWERS10,000,000
PV - ANSWERS$9,562,397
Interest Payment - ANSWERS$10,000,000 × 4% × 1/2 = $200,000
N - ANSWERS8 (4*2)
I/Y - ANSWERS2.5 (5% /2)
Present Value of a Single Cash Payment - ANSWERSFuture value ÷ (1 + discount rate)
Saucy, Inc. Investment - ANSWERS$1,113,706
N for Saucy, Inc. - ANSWERS20 (5*4)
I/Y for Saucy, Inc. - ANSWERS1.5 (6%/4)
, Monthly Deposit for Saucy, Inc. - ANSWERS$38,133
N for Monthly Deposit - ANSWERS36 (3*12)
I/Y for Monthly Deposit - ANSWERS0.5 (6%/12)
Salbador Motor Company PV - ANSWERS$1,492,431
Salbador Motor Company PV (Semiannual) - ANSWERS$1,487,112
Quarterly Deposit for Salbador Motor Company - ANSWERS$85,270
N for Quarterly Deposit - ANSWERS16 (4 * 4)
I/Y for Quarterly Deposit - ANSWERS1.25 (5% /4)
Colt Co. Required Accumulation - ANSWERS$250 million
Colt Co. Initial Deposit - ANSWERS$200 million
N for Colt Co. - ANSWERS8 (4*2)
I/Y for Colt Co. - ANSWERS3 (6% /2)
Installment note - ANSWERSA loan to be repaid monthly over a specified period.
