Slide
41
UCSB,
Anderson
Accounting
& The Time
Value of
Money
Chapter
6
Slide
42
UCSB,
Anderson
Learning Objectives
z
Identify accounting topics where time value of money is
relevant;
z
Distinguish between simple and compound interest;
z
Learn how to use compound interest tables (NOTE we will also
cover using excel worksheets & formulas and financial
calculators);
z
Identify variables fundamental to solving interest problems;
z
Solve future and present value of 1 problems;
z
Solve future and present value of ordinary and annuity due
problems;
z
Solve PV problems related to deferred annuities and bonds;
z
Apply the expected cash flow approach to present value
measurement.
Slide
43
UCSB,
Anderson
Key Terminology
z
Present Value:
Today’s value of money to be
received in the future;
z
Future Value:
Value of an amount known today
which will be received/ paid in the future.
z
Compound:
Interest earning interest.
Compounding
period should be stated, generally monthly
z
Annuity:
Payments over a period of time in equal
amounts.
z
Payment Interval:
Frequency of annuity pmts.
z
Ordinary annuity:
payments made at the end of the
payment interval
z
Annuity due:
payments made at the beginning of the
payment interval
Slide
44
UCSB,
Anderson
TimeValue of Money basics
z
$1 today is worth more than $1 tomorrow;
z
GAAP seeks to present the “economic substance
over legal form” of a transaction.
Consequently, PV
becomes relevant.
Glaring example:
–
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 Winter '08
 anderson
 Time Value Of Money, Future Value

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