Chapter 5 Flashcards
Time Value of Money
What is Time Value of Money?
A relationship between time and money, A dollar received today is worth more than a dollar promised in the future
Where can Present Value Based Accounting Measurements be used?
1.) Notes
2.) Leases
3.) Pensions and Other Postretirement Benefits
4.) Long - Term Assets
5.) Stock-Based Compensation
6.) Business Combinations
7.) Disclosures
8.) Environmental Liabilities
What are the variables in Interest Computation
Principal, Interest Rate, Time
What is the principal
The amount borrowed or invested (Face Value)
What is the Interest Rate
A percentage of the outstanding principal
How do you compute simple intersest
Interest = p x i x n
What is compound interest
interest that is computed on the principal and the interest earned from the previous period (interest builds on interest)
What do you use to calculate the interest rate per period on excell
=RATE
What do you use to calculate the total of number of periods on excell
=NPER
what does pmt mean on excel
Its the amount of payments made per period in an annuity
What does PV on excel mean
Your Present value
What does type mean on excel
the type of annuity
If you have a 12% annual Interest rate over five years what is the interest per period and also how many periods is it if the interest is compounded quarterly
3% per period for 20 periods
When is a single sum used
when you have a lump sum
What are the requirements for an Annuity?
1.) Equal periodic payments (Rents)
2.) Same length interval between the rents
3.) Compounding interest once each interval
