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Financial Accounting Appendix C
Financial Accounting Appendix C
C- 1
Appendix C
Appendix
C- 4
Nature of Interest
Appendix
C- 5
SO 1 Distinguish between simple and compound interest.
Nature of Interest
Simple Interest
Interest computed on the principal only.
Illustration:
If you borrow $5,000 for 2 years at a simple interest of 12%
annually. Calculate the annual interest cost.
Illustration C-1
Interest = p x i x n
FULL YEAR = $5,000 x .12 x 2
= $1,200
Appendix
C- 6
SO 1 Distinguish between simple and compound interest.
Nature of Interest
Compound Interest
Computes interest on
the principal and
any interest earned that has not been paid or
withdrawn.
Appendix
C- 7
SO 1 Distinguish between simple and compound interest.
Nature of Interest - Compound Interest
Appendix
C- 8
SO 1 Distinguish between simple and compound interest.
Future Value of a Single Amount Section 1
Illustration C-4
Appendix
C- 10
SO 2 Solve for a future value of a single amount.
Future Value of a Single Amount Alternate
Method
Illustration: If you want a 9% rate of return, you would
compute the future value of a $1,000 investment for three
years as follows:
Illustration C-4
Appendix
C- 11
SO 2 Solve for a future value of a single amount.
Future Value of a Single Amount
Appendix
C- 12
SO 2 Solve for a future value of a single amount.
Future Value of a Single Amount
Illustration:
Appendix
C- 13
SO 2 Solve for a future value of a single amount.
Future Value of a Single Amount
Necessary to know
1. the interest rate,
Appendix
C- 15
SO 3 Solve for a future value of an annuity.
Future Value of an Annuity
Appendix
C- 16
SO 3 Solve for a future value of an annuity.
Future Value of an Annuity
Illustration:
Invest = $2,000
i = 5%
n = 3 years
Illustration C-7
Appendix
C- 17
SO 3 Solve for a future value of an annuity.
Future Value of an Annuity
Appendix
C- 18
SO 3 Solve for a future value of an annuity.
Future Value of an Annuity
Appendix
C- 19
SO 3 Solve for a future value of an annuity.
Present Value Concepts Section 2
Appendix
C- 20
SO 4 Identify the variables fundamental to solving present value problems.
Present Value of a Single Amount
Illustration C-9
Formula for present value
Appendix
C- 21
SO 5 Solve for present value of a single amount.
Present Value of a Single Amount
Illustration C-10
Appendix
C- 22
SO 5 Solve for present value of a single amount.
Present Value of a Single Amount
Illustration C-10
Appendix
C- 23
SO 5 Solve for present value of a single amount.
Present Value of a Single Amount
Appendix
C- 24
SO 5 Solve for present value of a single amount.
Present Value of a Single Amount
Illustration C-11
Appendix
C- 26
SO 5 Solve for present value of a single amount.
Present Value of a Single Amount
Appendix
C- 28
SO 5 Solve for present value of a single amount.
Present Value of an Annuity
Necessary to know
1. the discount rate,
2. the number of discount periods, and
3. the amount of the periodic receipts or payments.
Appendix
C- 29
SO 6 Solve for present value of an annuity.
Present Value of an Annuity
Illustration C-14
Appendix
C- 30
SO 6 Solve for present value of an annuity.
Present Value of an Annuity
Appendix
C- 31
SO 6 Solve for present value of an annuity.
Present Value of an Annuity
Appendix
C- 32
SO 6 Solve for present value of an annuity.
Time Periods and Discounting
Illustration: Assume that the investor received $500
semiannually for three years instead of $1,000 annually when
the discount rate was 10%. Calculate the present value of this
annuity.
100,000
Appendix
C- 34
SO 7 Compute the present value of notes and bonds.
Present Value of a Long-term Note or Bond
100,000
Appendix
C- 35
SO 7 Compute the present value of notes and bonds.
Present Value of a Long-term Note or Bond
PV of Principal
Appendix
C- 36
SO 7 Compute the present value of notes and bonds.
Present Value of a Long-term Note or Bond
PV of Interest
Appendix
C- 37
SO 7 Compute the present value of notes and bonds.
Present Value of a Long-term Note or Bond
Appendix
C- 38 SO 7 Compute the present value of notes and bonds.
Present Value of a Long-term Note or Bond
Appendix
C- 39
SO 7 Compute the present value of notes and bonds.
Present Value of a Long-term Note or Bond
Appendix
C- 40
SO 7 Compute the present value of notes and bonds.
Using Financial Calculators Section 3
Illustration C-22
Financial calculator keys
N = number of periods
I = interest rate per period
PV = present value
PMT = payment
FV = future value
Appendix
C- 41
SO 8 Use a financial calculator to solve time value of money problems.
Using Financial Calculators
Appendix
C- 42
SO 8 Use a financial calculator to solve time value of money problems.
Using Financial Calculators
Illustration C-24
Calculator solution for
present value of an annuity
Appendix
C- 43
SO 8 Use a financial calculator to solve time value of money problems.
Using Financial Calculators
Illustration C-25
Appendix
C- 44
SO 8 Use a financial calculator to solve time value of money problems.
Using Financial Calculators
Appendix
C- 45
SO 8 Use a financial calculator to solve time value of money problems.
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Appendix
C- 46