CHAP006 - Chapter 6 Time Value of Money Concepts True/False...

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Chapter 6 Time Value of Money Concepts True/False Questions 1. Compound interest includes interest earned on interest. Answer: True Learning Objective: 1 Level of Learning: 1 2. When interest is compounded, the contract rate of interest exceeds the effective rate of interest. Answer: False Learning Objective: 1 Level of Learning: 2 3. The calculation of future value requires the removal of interest. Answer: False Learning Objective: 2 Level of Learning: 1 4. The calculation of present value eliminates interest from future cash flows. Answer: True Learning Objective: 3 Level of Learning: 1 5. Monetary assets include only cash and cash equivalents. Answer: False Learning Objective: 9 Level of Learning: 1 6. Most, but not all, liabilities are monetary liabilities. Answer: True Learning Objective: 9 Level of Learning: 1 7. An annuity consists of level principal payments plus interest on the unpaid balance. Answer: False Learning Objective: 5 Level of Learning: 1 8. With an annuity due, a payment is made or received on the date the agreement begins. Answer: True Learning Objective: 5 Level of Learning: 1 9. Other things being equal, the present value of an annuity due will be less than the present value of an ordinary annuity. Answer: False Learning Objective: 7 Level of Learning: 1 10. Given identical current amounts owed and identical interest rates, annual payments of an ordinary annuity will be greater than annual payments of an annuity due. Answer: True Learning Objective: 5 Level of Learning: 2 11. A deferred annuity is one in which interest charges are deferred for a stated time period. Answer: False Learning Objective: 7 Level of Learning: 1 12. An annuity is a series of equal periodic payments. Answer: True Learning Objective: 5 Level of Learning: 1 Spiceland/Sepe/Tomassini, Intermediate Accounting, Fourth Edition 197
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Chapter 6 Time Value of Money Concepts Matching Pair Questions Use the following to answer questions 13-17: 13-17. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term placing the letter designating the best term in the space provided by the phrase. Terms: A. Annuity B. Future value C. Future value of an annuity due D. Future value of an ordinary annuity E. Monetary asset F. Nonmonetary asset G. Present value of a single amount H. Present value of an annuity due I. Simple interest J. Time value of money Phrases:
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