acc practice test - APPENDIX A STUDY OBJECTIVES 1....

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APPENDIX A STUDY OBJECTIVES 1. DISTINGUISH BETWEEN SIMPLE AND COMPOUND INTEREST. 2. SOLVE FOR FUTURE VALUE OF A SINGLE AMOUNT. 3. SOLVE FOR FUTURE VALUE OF AN ANNUITY. 4. IDENTIFY THE VARIABLES FUNDAMENTAL TO SOLVING PRESENT VALUE PROBLEMS. 5. SOLVE FOR PRESENT VALUE A OF SINGLE AMOUNT. 6. SOLVE FOR PRESENT VALUE OF AN ANNUITY. 7. COMPUTE THE PRESENT VALUE IN CAPITAL BUDGETING SITUATIONS. A-1
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LECTURE OUTLINE A. Nature of Interest. 1. Interest is payment for the use of another person's money. It is the difference bet-ween the amount borrowed or invested (called the principal) and the amount repaid or col- lected. 2. The amount of interest involved in any financing transaction is based on: a. Principal ( p ): The original amount borrowed or invested, b. Interest Rate ( i ): An annual percentage of the principal, c. Time ( n ): The number of years that the principal is borrowed or invested. 3. Simple interest is computed on the principal amount only. Use ILLUSTRATION A-1 to distinguish between simple interest and com- pound interest. 4. Compound interest is computed on principal and on any interest earned that has not been paid or withdrawn. It is the return on the principal for two or more time periods. B. Future Value of a Single Amount. 1. The future value of a single amount is the value at a future date of a given amount in- vested assuming compound interest. 2. The future value of a single amount can be computed using the following formula: FV = p × (1 + i ) n p = principal; i = interest rate; n = number of periods. 3. Another way to compute the future value of a single amount is to use Table 1, which
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This note was uploaded on 05/08/2008 for the course ACC 210 taught by Professor John during the Spring '08 term at South Central College: Faribault Campus.

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acc practice test - APPENDIX A STUDY OBJECTIVES 1....

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