Chapter 6. Time Value of Money Concepts

Question 1

An obligation to pay amounts of cash which is fixed or determinable is called a ___________ liability

Answer 1

monetary

Question 2

_______ assets include money and claims to receive money, the amount of which is fixed or determinable

Answer 2

monetary

Question 3

The rate at which money actually grows during a year is called either the _________ rate or the ___________ rate

Answer 3

effective or yield

Question 4

Time value of money calculations are required for which topics
A) Inventory
B) Pensions
C) long-term notes payable
D) leases

Answer 4

B) Pensions
C) long-term notes payable
D) leases

Question 5

The terms used to describe the rate at which money will grow during a full year are ________ and the __________

Answer 5

effective yield and annual yield

Question 6

The expected cash flow approach requires what interest rate in determining expected cash flows
A) weighted average rate of all securities issued
B) risk-free rate
C) effective rate of a AA bond
D) credit-adjusted risk-free rate

Answer 6

D) credit-adjusted risk-free rate

Question 7

On January 1, year 1, klondike issued 10-year bonds with a stated rate of 10% and a face amount of $100,000. The bonds pay interest annually. The market rate of interest was 12%. Calculate the issue price of the bonds. Round your answer to the nearest dollar

Answer 7

PMT = 100,000 * .10(state rate) = 10,000
I = 10%
N = 10 
FV = 100,000
CMPT PV = 88,699