Present Value - Fundamentals Flashcards
What type of annuity has the payment come at the end of the accounting period?
Ordinary Annuity (Annuity in Arrears)
What type of annuity has the payment come at the beginning of the accounting period?
Annuity Due (Inadvance)
What is the Present Value formula?
= 1/(1+i)^n
If a loan/cash flow is less than one year, do you have to worry about capturing present value?
No
Loan Origination Costs:
- Incurred by Bank
- Direct Costs are added to Loan
- Indirect Costs are expense for bank
- Have no affect on Borrower
Loan Origination Fees (Points):
- Additional Bank revenue that reduces what the borrower gets but still has to pay back
- Subtracted from Loan amount
When creating an amortization schedule, the Carrying Value should always approach what?
The amount owed
- For the lender, this will go from the Loan amount minus the discount to the original value of the loan
- For the borrower, this will go from the CV (minus orig. fees) to zero
If FVO is elected what should not be figured?
Discounts or premiums
Discounts on Notes Payable is what type of account?
Contra-Liability
Where will the Debit Balance of Discount on Notes Payable be amortized to?
Interest Expense
A Discount occures on Notes Payable when?
The face value of the note exceeds its present value
A Premium occures on Notes Payable when?
The present value of the note exceeds its face value
