MULTIPLE CHOICE—Computational

47. If a savings account pays interest at 4% compounded quarterly, then the amount of $1
left on deposit for 8 years would be found in a table using
a. 8 periods at 4%.
b. 8 periods at 1%.
c. 32 periods at 4%.
d. 32 periods at 1%.

Items 48 through 51 apply to the appropriate use of interest tables. Given below are the future
value factors for 1 at 8% for one to five periods. Each of the items 48 to 51 is based on 8%
interest compounded annually.
Periods Future Value of 1 at 8%
1 1.080
2 1.166
3 1.260
4 1.360
5 1.469

48. What amount should be deposited in a bank account today to grow to $10,000 three
years from today?
a. $10,000 × 1.260
b. $10,000 × 1.260 × 3
c. $10,000 ÷ 1.260
d. $10,000 ÷ 1.080 × 3

49. If $3,000 is put in a savings account today, what amount will be available three years
from today?
a. $3,000 ÷ 1.260
b. $3,000 × 1.260
c. $3,000 × 1.080 × 3
d. ($3,000 × 1.080) + ($3,000 × 1.166) + ($3,000 × 1.260)

50. What amount will be in a bank account three years from now if $6,000 is invested each
year for four years with the first investment to be made today?
a. ($6,000 × 1.260) + ($6,000 × 1.166) + ($6,000 × 1.080) + $6,000
b. $6,000 × 1.360 × 4
c. ($6,000 × 1.080) + ($6,000 × 1.166) + ($6,000 × 1.260) + ($6,000 × 1.360)
d. $6,000 × 1.080 × 4
51. If $4,000 is put in a savings account today, what amount will be available six years from
now?
a. $4,000 × 1.080 × 6
b. $4,000 × 1.080 × 1.469
c. $4,000 × 1.166 × 3
d. $4,000 × 1.260 × 2

Items 52 through 55 apply to the appropriate use of present value tables. Given below are the
present value factors for $1.00 discounted at 10% for one to five periods. Each of the items 52
to 55 is based on 10% interest compounded annually.
Present Value of $1
 Periods Discounted at 10% per Period
1 0.909
2 0.826
3 0.751
4 0.683
5 0.621

52. If an individual put $4,000 in a savings account today, what amount of cash would be
available two years from today?
a. $4,000 × 0.826
b. $4,000 × 0.826 × 2
c. $4,000 ÷ 0.826
d. $4,000 ÷ 0.909 × 2

53. What is the present value today of $6,000 to be received six years from today?
a. $6,000 × 0.909 × 6
b. $6,000 × 0.751 × 2
c. $6,000 × 0.621 × 0.909
d. $6,000 × 0.683 × 3

54. What amount should be deposited in a bank today to grow to $3,000 three years from
today?
a. $3,000 ÷ 0.751
b. $3,000 × 0.909 × 3
c. ($3,000 × 0.909) + ($3,000 × 0.826) + ($3,000 × 0.751)
d. $3,000 × 0.751

55. What amount should an individual have in a bank account today before withdrawal if
$5,000 is needed each year for four years with the first withdrawal to be made today and
each subsequent withdrawal at one-year intervals? (The balance in the bank account
should be zero after the fourth withdrawal.)
a. $5,000 + ($5,000 × 0.909) + ($5,000 × 0.826) + ($5,000 × 0.751)
b. $5,000 ÷ 0.683 × 4
c. ($5,000 × 0.909) + ($5,000 × 0.826) + ($5,000 × 0.751) + ($5,000 × 0.683)
d. $5,000 ÷ 0.909 × 4

56. At the end of two years, what will be the balance in a savings account paying 6%
annually if $5,000 is deposited today? The future value of one at 6% for one period is
1.06.
a. $5,000
b. $5,300
c. $5,600
d. $5,618

57. Windsor Company will receive $100,000 in 7 years. If the appropriate interest rate is
10%, the present value of the $100,000 receipt is
a. $51,000.
b. $51,316.
c. $151,000.
d. $194,872.
58. Sheeley Company will receive $100,000 in a future year. If the future receipt is
discounted at an interest rate of 10%, its present value is $51,316. In how many years is
the $100,000 received?
a. 5 years
b. 6 years
c. 7 years
d. 8 years

59. Jensen Company will invest $200,000 today. The investment will earn 6% for 5 years,
with no funds withdrawn. In 5 years, the amount in the investment fund is
a. $200,000.
b. $260,000.
c. $267,646.
d. $268,058.

60. Finley Company will receive $500,000 in 7 years. If the appropriate interest rate is 10%,
the present value of the $500,000 receipt is
a. $255,000.
b. $256,580.
c. $755,000.
d. $974,360.

61. Swanson Company will receive $100,000 in a future year. If the future receipt is
discounted at an interest rate of 8%, its present value is $63,017. In how many years is
the $100,000 received?
a. 5 years
b. 6 years
c. 7 years
d. 8 years

62. Jasper Company will invest $300,000 today. The investment will earn 6% for 5 years,
with no funds withdrawn. In 5 years, the amount in the investment fund is
a. $300,000.
b. $390,000.
c. $401,469.
d. $402,087.

63. Quincey Corporation makes an investment today (January 1, 2006). They will receive
$10,000 every December 31st for the next six years (2006 – 2011). If Quincey wants to
earn 12% on the investment, what is the most they should invest on January 1, 2006?
a. $41,114.
b. $46,048.
c. $81,152.
d. $90,890.

64. Craig Rusch Corporation will receive $10,000 today (January 1, 2006), and also on each
January 1st for the next five years (2007 – 2011). What is the present value of the six
$10,000 receipts, assuming a 12% interest rate?
a. $41,114.
b. $46,048.
c. $81,152.
 d. $90,890.

65. Schmitt Corporation will invest $10,000 every December 31st for the next six years
(2006 – 2011). If Schmitt will earn 12% on the investment, what amount will be in the
investment fund on December 31, 2011?
a. $41,114.
b. $46,048.
c. $81,152.
d. $90,890.

66. Linton Corporation will invest $10,000 every January 1st for the next six years (2006 –
2011). If Linton will earn 12% on the investment, what amount will be in the investment
fund on December 31, 2011?
a. $41,114
b. $46,048.
c. $81,152.
d. $90,890.

67. Gorman Corporation makes an investment today (January 1, 2006). They will receive
$20,000 every December 31st for the next six years (2006 – 2011). If Gorman wants to
earn 12% on the investment, what is the most they should invest on January 1, 2006?
a. $82,228.
b. $92,096.
c. $162,304.
d. $181,780.

68. Renfro Corporation will receive $20,000 today (January 1, 2006), and also on each
January 1st for the next five years (2007 – 2011). What is the present value of the six
$20,000 receipts, assuming a 12% interest rate.?
a. $82,228.
b. $92,096.
c. $162,304.
d. $181,780.

69. Pedigo Corporation will invest $30,000 every December 31st for the next six years (2006
– 2011). If Pedigo will earn 12% on the investment, what amount will be in the
investment fund on December 31, 2011?
a. $123,342
b. $138,144.
c. $243,456.
d. $272,670.

70. Wagner Corporation will invest $25,000 every January 1st for the next six years (2006 –
2011). If Wagner will earn 12% on the investment, what amount will be in the investment
fund on December 31, 2011?
a. $102,785.
b. $115,120.
c. $202,880.
d. $227,225.
 71. On January 1, 2007, Carly Company decided to begin accumulating a fund for asset
replacement five years later. The company plans to make five annual deposits of
$50,000 at 9% each January 1 beginning in 2007. What will be the balance in the fund,
within $10, on January 1, 2012 (one year after the last deposit)? The following 9%
interest factors may be used.
Present Value of Future Value of
Ordinary Annuity Ordinary Annuity
4 periods 3.2397 4.5731
5 periods 3.8897 5.9847
6 periods 4.4859 7.5233
a. $326,166
b. $299,235
c. $272,500
d. $250,000

Use the following 8% interest factors for questions 72 through 75.

Present Value of Future Value of
Ordinary Annuity Ordinary Annuity
7 periods 5.2064 8.92280
8 periods 5.7466 10.63663
9 periods 6.2469 12.48756

72. What will be the balance on September 1, 2013 in a fund which is accumulated by
making $8,000 annual deposits each September 1 beginning in 2006, with the last
deposit being made on September 1, 2013? The fund pays interest at 8% compounded
annually.
a. $85,093
b. $71,383
c. $60,480
d. $45,973

73. If $5,000 is deposited annually starting on January 1, 2007 and it earns 8%, what will the
balance be on December 31, 2014?
a. $44,614
b. $48,183
c. $53,183
d. $57,438

74. Henson Company wishes to accumulate $300,000 by May 1, 2015 by making 8 equal
annual deposits beginning May 1, 2007 to a fund paying 8% interest compounded
annually. What is the required amount of each deposit?
a. $52,205
b. $28,204
c. $26,115
d. $30,234

75. What amount should be recorded as the cost of a machine purchased December 31,
2006, which is to be financed by making 8 annual payments of $6,000 each beginning
December 31, 2007? The applicable interest rate is 8%.
a. $42,000
 b. $37,481
c. $63,820
d. $34,480

76. How much must be deposited on January 1, 2007 in a savings account paying 6%
annually in order to make annual withdrawals of $20,000 at the end of the years 2007
and 2008? The present value of one at 6% for one period is .9434.
a. $36,668
b. $37,740
c. $40,000
d. $17,800

77. How much must be invested now to receive $10,000 for 15 years if the first $10,000 is
received today and the rate is 9%?
Present Value of
Periods Ordinary Annuity at 9%
14 7.78615
15 8.06069
16 8.31256
a. $80,607
b. $87,862
c. $150,000
d. $73,125

78. Foley Company financed the purchase of a machine by making payments of $18,000 at
the end of each of five years. The appropriate rate of interest was 8%. The future value
of one for five periods at 8% is 1.46933. The future value of an ordinary annuity for five
periods at 8% is 5.8666. The present value of an ordinary annuity for five periods at 8%
is 3.99271. What was the cost of the machine to Foley?
a. $26,448
b. $71,869
c. $90,000
d. $105,600

79. A machine is purchased by making payments of $5,000 at the beginning of each of the
next five years. The interest rate was 10%. The future value of an ordinary annuity of 1
for five periods is 6.10510. The present value of an ordinary annuity of 1 for five periods
is 3.79079. What was the cost of the machine?
a. $33,578
b. $30,526
c. $20,849
d. $18,954

80. Catt Co. has a machine that cost $200,000. It is to be leased for 20 years with rent
received at the beginning of each year. Catt wants a return of 10%. Calculate the
amount of the annual rent.
Present Value of
Period Ordinary Annuity
19 8.36492
20 8.51356
21 8.64869
 a. $21,356
b. $23,909
c. $29,728
d. $23,492

81. Find the present value of an investment in plant and equipment if it is expected to
provide annual earnings of $21,000 for 15 years and to have a resale value of $40,000
at the end of that period. Assume a 10% rate and earnings at year end. The present
value of 1 at 10% for 15 periods is .23939. The present value of an ordinary annuity at
10% for 15 periods is 7.60608. The future value of 1 at 10% for 15 periods is 4.17725.
a. $159,728
b. $169,303
c. $185,276
d. $324,576

82. On January 2, 2007, Yenn Corporation wishes to issue $2,000,000 (par value) of its 8%,
10-year bonds. The bonds pay interest annually on January 1. The current yield rate on
such bonds is 10%. Using the interest factors below, compute the amount that Yenn will
realize from the sale (issuance) of the bonds.
Present value of 1 at 8% for 10 periods 0.4632
Present value of 1 at 10% for 10 periods 0.3855
Present value of an ordinary annuity at 8% for 10 periods 6.7101
Present value of an ordinary annuity at 10% for 10 periods 6.1446
a. $2,000,000
b. $1,754,136
c. $2,000,012
d. $2,212,052

Note: Students must be given interest tables for question 83.

83. The market price of a $200,000, ten-year, 12% (pays interest semiannually) bond issue
sold to yield an effective rate of 10% is
a. $224,578.
b. $224,925.
c. $226,654.
d. $374,472.

Multiple Choice Answers—Computational

Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
47. d 53. c 59. c 65. c 71. a 77. b 83. b
48. c 54. d 60. b 66. d 72. a 78. b
49. b 55. a 61. b 67. a 73. d 79. c
50. a 56. d 62. c 68. b 74. c 80. a
51. b 57. b 63. a 69. c 75. d 81. b
52. c 58. c 64. b 70. d 76. a 82. b