Fundamentals of Financial Accounting Solutions Manual

Fundamentals of Financial Accounting Solutions Manual -...

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Appendix C - Present and Future Value Concepts Appendix C Present and Future Value Concepts ANSWERS TO QUESTIONS 1. The time value of money is the idea that a dollar received today is worth more than a dollar to be received at any later date because it can be invested today to earn interest over time. 2. Future value—The future value of a number of dollars is the amount that it will increase to in the future at i interest rate for n periods. The future value is the principal plus accumulated interest compounded each period. Present value—The present value of a number of dollars, to be received at some specified date in the future, is that amount discounted to the present at i interest rate for n periods. It is the inverse of future value. In compound discounting, the interest is subtracted rather than added as in compounding. 3. $10,000 x 2.5937 = $25,937 (a 259% increase). 4. $8,000 x .3855 = $3,084. 5. An annuity is a term that refers to equal periodic cash payments or receipts of an equal amount each period for two or more periods. In contrast to a future value of
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