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Question 18

Hogan Company has $1,000,000 of bonds outstanding. The unamortized premium is $14,400. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption?

$10,000 gain

$4,400 loss

$10,000 loss

$4,400 gain

Question 19

Hulse Corporation retires its $600,000 face value bonds at 105 on January 1, following the payment of annual interest. The carrying value of the bonds at the redemption date is $622,470. The entry to record the redemption will include a

credit of $22,470 to Loss on Bond Redemption.

debit of $22,470 to Premium on Bonds Payable.

credit of $7,530 to Gain on Bond Redemption.

debit of $30,000 to Premium on Bonds Payable.

Question 20

How much money would you have to invest today at 4% in order to have $200,000 fifteen years from now so that you can pay your health care costs when you retire?

$103,034

$106,034

$111,052

$115,152

Question 21

Hooray! You won the lottery, but you have a choice of taking the $20,000 per year for the next 20 years or taking a lump settlement today. What would be the minimum amount you would accept today if you decide that 8% is a reasonable discount rate?

$196,363

$432,000

$400,000

$915,239

Question 22

Your company has been bought out by another company. In the acquisition, you have been asked to leave the company and as severance pay may take either $100,000 per year for the next ten years or a lump settlement today. If 10% is a reasonable discount rate, what would be the minimum amount you would accept today?

$1,000,000

$614,457

$641,457

$632,000

Question 23

Loom, Inc. has outstanding a $1,000 face value bond with a 5% contract interest rate. The bond has 10 years remaining until maturity. If interest is paid annually, what is the value of the bond if the required rate of return is 6%?

$926.39

$1,000.00

$1,046.95

$962.39

Question 24

What is the market value of a $1,000 bond, which has a coupon interest rate of 10% and will mature in 10 years if it is discounted at 15%? Interest is paid annually.

$876.64

$749.07

$1,000.00

$1,200.00

Question 25

The amount you must deposit now in your savings account paying 5% interest, in order to accumulate $15,000 for your first tuition payment when you start college in 3 years is

$12,594.30.

$13,289.40.

$13,350.

$12,957.60.

Question 26

Suppose you have a winning lottery ticket and you are given the option of accepting $7,000,000 three years from now or taking the present value of the $7,000,000 now. The sponsor of the prize uses a 6% discount rate. If you elect to receive the present value of the prize now, the amount you will receive is

$7,000,000.

$5,877,340.

$6,046,880.

	$6,230,000.
Question 27 Montz Company is considering investing in an annuity contract that will return $80,000 annually at the end of each year for 12 years. Montz has obtained the following values related to the time value of money to help in its planning process and compounded interest decisions. Present value of 1 for 12 periods at 9% 0.35554 Future value of 1 for 12 periods at 9% 2.81267 Present value of an annuity of 1 for 12 periods at 9% 7.16073 Future value of an annuity of 1 for 12 periods at 9% 20.14072 To the closest dollar, what amount should Montz Company pay for this investment if it earns a 9% return? $572,858 $1,185,014 $994,132 $1,611,258 Question 28 Glover Company is about to issue $3,000,000 of 5-year bonds, with a contract rate of interest of 8%, payable semiannually. The discount rate for such securities is 10%. How much can Glover expect to receive from the sale of these bonds? $2,768,338 $3,000,000 $3,231,660 $3,243,315 Question 29 Valente Company is about to issue $3,000,000 of 5-year bonds, with a contract rate of interest of 10%, payable semiannually. The discount rate for such securities is 8%. How much can Valente expect to receive from the sale of these bonds? $3,000,000 $2,768,338 $3,243,315 $3,231,660
Question 30

Dodd Company is considering an investment, which will return a lump sum of $675,000 four years from now. Below is some of the time value of money information that Dodd has compiled that might help in planning compounded interest decisions.

Present value of 1 for 4 periods at 10%		0.68301
Future value of 1 for 4 periods at 10%		1.46410
Present value of an annuity of 1 for 4 periods at 10%		3.16986
Future value of an annuity of 1 for 4 periods at 10%		4.64100

To the closest dollar, what amount should Dodd Company pay for this investment to earn a 10% return?

$461,032

$405,000

$534,914

		$270,000
Question 31

Ando Company earns 11% on an investment that pays back $660,000 at the end of each of the next 5 years. Ando finance department has the following values related to the time value of money to help in its planning process and compounded interest decisions.

Present value of 1 for 5 periods at 11%		0.59345
Future value of 1 for 5 periods at 11%		1.68506
Present value of an annuity of 1 for 5 periods at 11%		3.69590
Future value of an annuity of 1 for 5 periods at 11%		6.22780

To the closest dollar, what is the amount Ando invested to earn the 11% rate of return?

$391,677

$2,439,294

$178,577

	$1,112,139
Question 32 In order to compute the present value of an annuity, it is necessary to know the discount rate. number of discount periods and the amount of the periodic payments or receipts. 2. 1. Both 1 and 2. Something in addition to 1 and 2. Question 33 A $30,000, 8%, 10-year note payable that pays interest quarterly would be discounted back to its present value by using tables that would indicate which one of the following period-interest combinations? 40 interest periods, 2% interest 10 interest periods, 2% interest 10 interest periods, 8% interest 40 interest periods, 8% interest Question 34 If a bond has a contract rate of interest of 6%, but the discount rate of interest is 8%, the bond will sell at a premium (more than face value). will sell at its face value. may sell at either a premium or a discount. will sell at a discount (less than face value). Question 36 When determining the proceeds received when issuing a bond, the factor applied to the amount of the bond principal is determined from the table of the present value of an annuity 1. future value of an annuity 1. present value of 1. future value of 1.
Question 37

If a bond has a contract rate of 10% and is discounted at 10%, then the proceeds received at issuance will be

greater than the face value of the bonds.

less than the face value of the bonds.

zero.

equal to the face value of the bonds.

Question 38

Rhode Company is about to issue $4,000,000 of 5-year bonds, with a contract rate of interest of 8%, payable semiannually. The discount rate for such securities is 10%. How much can Rhode expect to receive from the sale of these bonds?

$4,000,000

$4,324,440

$3,308,880

$3,691,117

Question 39

Chenard Company is about to issue $3,000,000 of 8-year bonds paying a 12% interest rate with interest payable semiannually. The discount rate for such securities is 10%. Below are time value of money factors that Chenard uses to calculate compounded interest.

	8 periods, 10%	16 periods, 5%	8 periods, 12%	16 periods, 6%
Present value 1	0.46651	0.45811	0.40388	0.39365
Future value 1	2.14359	2.18287	2.47596	2.54035
Present value of an annuity of 1	5.33493	10.83777	4.96764	10.10590
Future value of an annuity of 1	11.43589	23.65749	12.29969	25.67253

To the closest dollar, how much can Chenard expect to receive for the sale of these bonds?

$2,293,710

$3,325,130

$5,400,000

$3,193,390

Question 40 Patterson Company is about to issue $8,000,000 of 10-year bonds paying an 8% interest rate with interest payable semiannually. The discount rate for such securities is 10%. Below are time value of money factors that Patterson uses to calculate compounded interest. 10 periods, 8% 20 periods, 4% 10 periods, 10% 20 periods, 5% Present value 1 0.46319 0.45639 0.38554 0.37689 Future value 1 2.15892 2.19112 2.59374 2.65330 Present value of an annuity of 1 6.71008 13.59033 6.14457 12.46221 Future value of an annuity of 1 14.48656 29.77808 15.93743 33.06595 To the closest dollar, how much can Patterson expect to receive for the sale of these bonds? $16,000,000 $7,003,027 $28,110,060 $5,852,740

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