Course pack Accounting 202 Appendix C (back of textbook, after Chapter 14) Time Value of Money $$$$$$$$$$$$$$ CHAPTER REQUIREMENTS LECTURE & PRACTICE --Chapter Reading Questions (Assessments) --Chapter Group Discussion Forums (Discussions) --Homework (Assignments) --Chapter Quizzes (Assessments) Unit Requirements: --Proctored Exam, Appendix C, Chapters 11 & 12 Appendix C Course Pack (below) Use with Chapter Slides (PowerPoint): Appendix C Part 1 Accounting 202: Active learning Introduction: Appendix C: The Time Value of Money Appendix C: READING QUESTIONS: 1) Would you rather receive $500 now or in 10 years? Why? 2) Let s say your grandmother gave you $1,000 and put it into the bank at.10% interest for 10 years. She told you it was your money BUT that you couldn t take it out of the bank until 10 years later. What amount would be in the bank at the end of the 10 years? Make ANY assumption you want regarding interest, but explain your answer and calculations. 3) If you were the borrower, would you rather have simple interest or compound interest? If you were the Lender, would you rather have simple interest or compound interest? C:\Users\Martin\Favorites\Documents\AAJudith WORK\2011 Winter\202 online\202 Course Pack Appendix C - online.doc 1 of 8
4) On page C3, they list four elements involved in solving the problem. Make up an example problem and define each one. 5) Follow up to Question #4. There are two other elements needed to solve the demonstration problem on page C3: Number and Factor (value). For the demo problem, what is the? 6) What are annuities? Give two examples of annuities. 7) There are four tables involved in Time Value of Money. What do s 1 and 3 have in common and what do s 2 and 4 have in common? You will submit your answers to the above questions with the Appendix C Reading Assessments (see Assessments). C:\Users\Martin\Favorites\Documents\AAJudith WORK\2011 Winter\202 online\202 Course Pack Appendix C - online.doc 2 of 8
BELOW: Notes to use while reading the Chapter PowerPoint slides. Simple interest you practice Principal (p) Interest Rate (i) Time (n) Compound Interest you practice TIME VALUE OF MONEY. Identify what element you are solving for, what element is NOT used (there is always one) and all the elements you know and will use to solve the problem. Let s take the SAME problem, but earn interest on a compound basis. Principal (p) Interest Rate (i) Time (n) 1 Example: FUTURE VALUE OF A SINGLE AMOUNT Element: Example #1 C:\Users\Martin\Favorites\Documents\AAJudith WORK\2011 Winter\202 online\202 Course Pack Appendix C - online.doc 3 of 8
Calculation and more practice: 2 Example: FUTURE VALUE OF AN ANNUITY Element: Example #2 3 Example: PRESENT VALUE OF A SINGLE AMOUNT Element: Example #3 C:\Users\Martin\Favorites\Documents\AAJudith WORK\2011 Winter\202 online\202 Course Pack Appendix C - online.doc 4 of 8
Calculation and more practice: 4 Example: PRESENT VALUE OF AN ANNUITY Element: Example #4 Calculation and more practice: C:\Users\Martin\Favorites\Documents\AAJudith WORK\2011 Winter\202 online\202 Course Pack Appendix C - online.doc 5 of 8
Now.Apply the Principles of Present Value to calculating Bond Selling Price. #1 Bond Sold at Face Value: What is the present value of a $100,000 face value bond, 5 year bond, with a 10% contract rate, issued when the market rate was 10%? 3: PRESENT VALUE OF A SINGLE AMOUNT Bond Principal Element: Example #3 4: PRESENT VALUE OF AN ANNUITY Bond Interest Payments Element: Example #4 Add the two amounts together to get the Bond Selling Price: C:\Users\Martin\Favorites\Documents\AAJudith WORK\2011 Winter\202 online\202 Course Pack Appendix C - online.doc 6 of 8
#2 Bond Sold at Discount: What is the present value of a $100,000 face value bond, 5 year bond, with a 10% contract rate, issued when the market rate was 12%? Was the bond issued at Discount or Premium? 3: PRESENT VALUE OF A SINGLE AMOUNT Bond Principal Element: Example #3 4: PRESENT VALUE OF AN ANNUITY Bond Interest Payments Element: Example #4 Add the two amounts together to get the Bond Selling Price: C:\Users\Martin\Favorites\Documents\AAJudith WORK\2011 Winter\202 online\202 Course Pack Appendix C - online.doc 7 of 8
#3 Bond Sold at Premium: What is the present value of a $100,000 face value bond, 5 year bond, with a 10% contract rate, issued when the market rate was 8%? Was the bond issued at Discount or Premium? 3: PRESENT VALUE OF A SINGLE AMOUNT Bond Principal Element: Example #3 4: PRESENT VALUE OF AN ANNUITY Bond Interest Payments Element: Example #4 Add the two amounts together to get the Bond Selling Price: C:\Users\Martin\Favorites\Documents\AAJudith WORK\2011 Winter\202 online\202 Course Pack Appendix C - online.doc 8 of 8