Multiple Choice Questions
1.Flores Company borrowed $10,000 at 10% interest for 5 years. Which statement is true?
a.Regardless of when the note is repaid, total interest over the loan period is the same.
b.Interest expense is the same regardless of the compounding periods.
c.The amount to be repaid is the same regardless of whether the principal is repaid $2,000 per year, or as a sum at the end of five years.
d.Interest is less if simple interest is used than if compound interest is used.
2.How much is interest revenue for 90 days on an 8%, 180-day note receivable with a face value of $25,000?
a. $1,800
b. $500
c. $300
d. $400
3.How much is interest revenue for 30 days on an 8%, 90-day note receivable with a face value of $6,000?
a. $40
b. $50
c. $90
d. $60
4.The following computation took place:
$20,000 divided by the future value of a year, 4% ordinary annuity
What question will this computation answera. How much must be invested now so that equal payments can be withdrawn at the end of each year for 12 years?
b.How much must be invested now so that $20,000 is accumulated by the end of the 12th
year?
c.How much will be available at the end of the12th year if a payment of $20,000 is deposted now?
d.How much must be deposited at the end of every year so that $20,000 is available at the end of 12 years?
5
.Interest is compounded annually. What is the total amount of interest on a $7,000 note payable at the end of five years at 8%?
a.$3,000
b.$3,285
c.$7,000
d.$3,791
6.
Which timing of payments is true for an ordinary annuity?
a. All payments occur at the beginning of the first year.
b.Payments begin immediately and occur once per year on the last day of each year.
c. Payments occur at the end of each period.
d. Payments occur at the beginning of each period.
7.Interest is compounded quarterly on a $10,000 note payable for 1 year at 12%. How much is total interest on the note?
a.$1,338
b.$1,286
c.$1,255
d.$1,506
8.You need to calculate the present value of an amount at 10% compounded quarterly for 2 years. What interest factor will you use?
a.10% for 4 periods
b.2.5% for 8 periods
c.20% for 2 periods
d.10% for 8 periods
9.Sierra Capital wants to accumulate $100,000 at the end of 10 years to fund retirement benefits for its accountant. Annual deposits will be made into a special account earning 6%, beginning at the end of year 1. To calculate the amount of the equal deposits, use the
a.future value of a annuity due.
b.present value of a single amount.
c.future value of an ordinary annuity.
d.present value of an annuity.
10.Malcom Corp. will deposit $10,000 annually at the end of each year for five years. Malcom will earn 6%. How much will be accumulated at the end of the 5 years?
a.$65,321
b.$70,399
c.$50,000
d.$56,371