hello quizlet
Home
Subjects
Expert solutions
Create
Study sets, textbooks, questions
Log in
Sign up
Upgrade to remove ads
Only $35.99/year
Appendix B: Time Value of Money
Flashcards
Learn
Test
Match
Flashcards
Learn
Test
Match
Terms in this set (29)
Time Is Money
The old saying "__________" reflects the notion that as time passes, the values of our assets and liabilities change.
A., C., and D.
Summarize what the old saying "Time is Money" means by choosing all of the statements below that reflect its meaning. (Check all that apply.)
A. The value of our assets change because of interest earned on the assets.
B. It reflects the notion that management can increase profitability if it has more timely information about the demographics of an area.
C. As we carry the balance of debt, we accumulate interest costs on it.
D. It reflects the notion that as time passes, the values of our assets and liabilities change.
Interest
A borrower's payment to the owner of an asset for its use.
Asset
The most common example of interest is a savings account __________. As a balance of cash is kept in the account, it earns interest that the financial institution pays.
Liability
An example of a __________ is a car loan. As we carry the balance of the loan, we accumulate interest costs on it. We must ultimately repay this loan with interest.
Earned and Paid
Interest is the amount of money __________ (earned/owed) by the owner of an asset and __________ (paid/earned) by the borrower of the asset for its use.
Present Value Computation
The __________ is important when we want to know the value of future-day assets today.
Future Date Computation
The __________ is important when we want to know the value of present-day assets at a future date.
B., C., and D.
Explain what future and present value computations enable us to do by selecting all of the correct statements below. (Check all that apply.)
A. Present and future value computations allow us to better budget our finances so that liquidity is reduced.
B. They enable us to measure or estimate the interest component of holding assets or debt over time.
C. The present value computation is important when we want to know the value of future-day assets today.
D. The future value computation is important when we want to know the value of present-day assets at a future date.
True
Determine whether the following statement is true or false regarding the present value concept.
"We want to know how much we must invest now in order to have a certain sum of money some time in the future."
Present Value (p)
The figure above graphically expresses the __________, called p, of a single future amount, called f, that is received or paid at a future date.
Present Value of a Single Amount (p)
__________ is equal to future value (f) divided by the sum of 1 and the rate of interest per period (i) raised to the number of periods (n).
p = f / (1 + i)^n
Times and Year
Describe what a period represents in time-value of money computations by completing the following sentence:
The present value or future value of a sum of money can be calculated as long as we know the number of __________ (days, times, years) that interest will be compounded within one __________ (year, month, day).
A. and D.
Illustrate your understanding of compounding interest by determining which of the statements below are true. (Check all that apply.)
A. Interest is added to a sum of money at the end of a period and then, this new sum is used to figure the interest amount of the next period, etc.
B. If the rate of interest is 8% compounded quarterly, then interest is figured two times a year.
C. When the interest rate is 10% compounded monthly for 12 months, then the total interest charged will be the same as 10% interest compounded annually.
D. If the rate of interest is 10% compounded monthly, then interest is figured 12 times during the year.
Present Value of 1 (p)
__________ is equal to 1 divided by the sum of 1 and the rate of interest per period (i) raised to the number of periods (n).
p = 1 / (1 + i)^n
C. 2 years
Blake is offered the possibility of investing $1,652.80 toady at 10%, in a desire to accumulate $2,000. Calculate the number of years that Blake must wait to accumulate $2,000 by using the Present Value of 1 table shown.
A. 6 years
B. 4 years
C. 2 years
D. 3 years
Future Value of a Single Amount (f)
__________ is equal to present value (p) times the sum of 1 and the interest rate per period (i) raised to the number of periods (n).
f = p x (1 + i)^n
$396.90
Assume that we want to have $500 three periods from today. Use the present value of a single formula to calculate how much we must invest now at an interest rate of 8% in order to have the $00 in the future: p=f/(1+i)^n
A. $396.90
B. $462.96
C. $403.23
Future Value of 1 (f)
__________ is equal to the sum of 1 and the interest rate per period (i) raised to the number of periods (n).
f = (1 + i)^n
B. $2,450.00
Rachel invests $2,000 today earning 7% per year for 3 years. Calculate how much money she will have at the end of three years by using the Future Value of 1 table shown.
A. $2,420.00
B. $2,450.00
C. $2,140.00
D. $2,289.80
Annuity
An __________ is a series of equal payments occurring at equal intervals. For example, a series of three annual payments of $100 each.
Ordinary Annuity
An __________ is defined as equal end-of-period payments at equal intervals.
True
True or False
An ordinary annuity is a series of equal payments occurring at equal intervals.
Present Value of an Ordinary Annuity (p)
An example of __________ would be the computations for three $100 payments at the end of each of the next three periods with an interest rate of 15%:
p = $100/(1 + 0.15)^1 + $100/(1 + 0.15)^2 + $100/(1 + 0.15)^3 = $228.32
Today, Multiple, Future
Explain the present value concept, applied to an annuity, by completing the following sentence:
A person can use the present value concept and apply it to an annuity to calculate how much money he has to invest __________ (today/tomorrow) in order to receive __________ (multiple/one) periodic payment(s) in the __________ (present/future).
C. $1,684.96
Janice purchased a diamond bracelet by agreeing to make 5 annual installments of $400 at the end of each of the next 5 years. The finance rate she is being charged is 6%. Use the Present Value of an Annuity of 1 table shown to determine the sticker price listed on the bracelet.
A. $1,386.04
B. $2,210.00
C. $1,684.96
D. $1,966.92
E. $2,000.00
B. $9,245.80
Jack is considering a project that will return $2,000 at the end of each year for 6 years. He wants a return of 8%. Use the Present Value of an Annuity of 1 table below to determine how much he is willing to pay for the project right now.
A. $12,960.00
B. $9,245.80
C. $9,720.00
D. $12,000.00
E. $9,834.60
Future Value of an Ordinary Annuity (f)
The __________ is the accumulated value of each annuity payment with interest as of the date of the final payment.
Future Value of an Ordinary Annuity (f)
An example of __________ would be the computations for three $100 payments at the end of each of the next three periods with an interest rate of 15%. However, the first payment is made two periods prior to the point when future value is determined, and the final payment occurs on the future value date.
f = $100(1 + 0.15)^2 + $100(1 + 0.15)^1 + $100(1 + 0.15)^0 = $347.25
Students also viewed
Time Value of Money
32 terms
accounting 2 appendix b
27 terms
Smartbook: Appendix B Time Value of Money
22 terms
ACCT 212
41 terms
Sets found in the same folder
Appendix B: Time Value of Money
22 terms
Time Value of Money
32 terms
Smartbook: Appendix B Time Value of Money
22 terms
accounting 2 appendix b
27 terms
Other sets by this creator
Chapter 2. THE LAW OF INFLUENCE
22 terms
Chapter 1. THE LAW OF THE LID
11 terms
Chapter 1: An Overview of International…
52 terms
Chapter 2: Global Marketplaces and Busin…
9 terms
Recommended textbook solutions
The Language of Composition: Reading, Writing, Rhetoric
2nd Edition
Lawrence Scanlon, Renee H. Shea, Robin Dissin Aufses
661 solutions
Technical Writing for Success
3rd Edition
Darlene Smith-Worthington, Sue Jefferson
468 solutions
Technical Writing for Success
3rd Edition
Darlene Smith-Worthington, Sue Jefferson
468 solutions
Literature and Composition: Reading, Writing,Thinking
1st Edition
Carol Jago, Lawrence Scanlon, Renee H. Shea, Robin Dissin Aufses
1,697 solutions
Other Quizlet sets
Accounting Chapter 4, Accrual Accounting Concepts
64 terms
Chapter 4
17 terms
accounting final ch.4 5 6
56 terms
Accounting Exam 2
39 terms