Review Notes Appendix C

Review Notes Appendix C - APPENDIX C TIME VALUE OF MONEY...

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APPENDIX C TIME VALUE OF MONEY STUDY OBJECTIVES Distinguish between simple and compound interest. Solve for future value of a single amount. . Solve for future value of an annuity. Identify the variables fundamental to solving present value problems. Solve for present value of a single amount. Solve for present value of an annuity. Compute the present value of notes and bonds. Use a financial calculator to solve time value of money problems. 1-1
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Chapter Outline Study Objective 1 – Distinguish Between Simple and Compound Interest Interest is payment for the use of another person’s money. The amount of interest involved in any financing transaction is based on three elements: Principal ( p ): The original amount borrowed or invested. Interest Rate ( i ): An annual percentage of the principal. Time ( n ): The number of years that the principal is borrowed or invested. Simple interest is computed on the principal amount only. Simple interest is usually expressed as: Interest = Principal x Rate x Time OR Interest = p x i x n Compound interest is computed on principal and on any interest earned that has not been paid or withdrawn. It is the return on (or growth of) the principal for two or more time periods. Study Objective 2 – Solve for Future Value of a Single Amount The future value of a single amount is the value at a future date of a given amount invested assuming compound interest. Future value is usually expressed as: FV = p x (1 + i ) n FV = future value of a single amount
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This note was uploaded on 08/18/2010 for the course ACCOUNTING 6020 taught by Professor Seki during the Spring '10 term at FAU.

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Review Notes Appendix C - APPENDIX C TIME VALUE OF MONEY...

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