*This preview shows
pages
1–2. Sign up to
view the full content.*

Accounting Chapter 8 Liabilities Notes
Lecture Slide Notes:
•
Time Value of Money
o
Time is money. Money you deposit in a bank account earns interest
o
The fact that money earns income over times is called the
time value of
money
•
Present Value of $1
o
The amount a person needs to invest today to receive money in the future
is called the present value of that future amount
o
Present value is always less than the future amount
o
The present value (PV) has a table
•
PV of an annuity
o
An annuity is a series of consecutive equal periodic payments.
o
Utilize the table locating interest rate and payment periods. Multiply the
amount by how much you want each payment to be worth and that is your
PV (how much to deposit in the bank now to receive those equal
consistent payments considering interest being made)
•
Corporate Borrowing
o
When investors want to lend money as a way of investing, depositing
money in a bank is the safest option
o
If investors decide to lend money to a company instead, what is the
interest rate they should demand? What factors should go into their
decisions?
The riskiness of the company (the higher the risk, the higher the
interest rate)
The Fed.’s interest rate decisions (market rate)
Idiosyncratic risk is not compensated
•
Definitions:
o
Principal is also called face value, maturity value, or par value. This is the
amount the issuing company has promised to pay at maturity
o
Contract interest rate (coupon rate) is usually quoted in annual terms. It
determines the dollar amount of cash interest payments.
o

This ** preview**
has intentionally

**sections.**

*blurred***to view the full version.**

*Sign up*
This is the end of the preview. Sign up
to
access the rest of the document.