ACCT I S 100 Chapter Notes - Chapter Appendix D: Interest

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tanfly138

13 Oct 2016

School

UW-Madison

Department

Accounting And Info Systems

Course

ACCT I S 100

Professor

Warfield Terry

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Document Summary

Time value of money prefer to receive money today rather than the same amount in the future because of the interest factor: interest is the difference between the amount borrowed (the principal) and the amount repaid. The amount of interest depends on: principal (p) the original amount borrowed, interest rate (i) annual percentage of principal, time (n) the number of year principal is borrowed. Simple interest computed on the principal amount only: interest = p * i * n. Compound interest computed on the principal plus any interest earned that has not been paid: so the interest is computed on the accumulated balance every year. Present value of an annuity: the value now of a series of future receipts/payments, discounted with compound interest. Need to know the 1) discount rate, 2) number of discount periods & 3)the amount of payments/receipts: when the amount is the same each period you can use table 4 on page d-10 for the present.

Related Questions

If a single future amount of $800 is to be received in 3 yearsand discounted at 6%, its present value is

$754.72.

$693.36.

$752.00.

$671.70.

A $50,000, 5-year note payable that pays 8% interest quarterlywould be discounted back to its present value by using tables thatwould indicate which one of the following period and interestcombinations?

5 interest periods and 8% interest.

20 interest periods and 8% interest.

20 interest periods and 2% interest.

5 interest periods and 2% interest

The amount of interest involved in any financing transaction isbased on each of the following except the

interest rate.

time.

principal.

present value of 1 factor.

Select the term that best fits each of the following definitions and descriptions.

a.	Notes receivable
b.	Nontrade receivables
c.	Net realizable value
d.	Direct write-off method
e.	Interest-bearing note
f.	Maturity date
g.	Promissory note
h.	Factoring receivables
i.	Trade discount
j.	Present value
k.	Allowance method
l.	Sales discount
m.	Negotiable note
n.	Non-interest-bearing note
o.	Assignment of receivables
p.	Valuation date

____ 21. Receivables that are evidenced by a formal written promise to pay a certain sum of money at a specified date.

____ 22. The date the principal amount of a note is due to be paid.

____ 23. The sum of future receipts or payments discounted to the present date at an appropriate rate of interest.

____ 24. A method of recognizing the estimated losses from uncollectible accounts as expenses during the period in which the sales occur.

____ 25. A note that is legally transferable by endorsement and delivery.

____ 26. Any receivable arising from transactions that are not directly associated with the normal operating activities of a business.

____ 27. A note written in the form where the face amount includes the interest charges.

____ 28. The borrowing of money with receivables pledged as security on the loan.

____ 29. A note written in the form where the maker promises to pay the face amount plus interest at a specified rate.

____ 30. An unconditional written promise to pay a certain sum of money at a specified time.

ochrecricket36

using the annuityformula:

F = (Pn/r)[(1 + (r/n))^nt+1 â 1]

where:

F is the future value of ALL of theinvestments/loans, including interest.

â¢ P is the principal amount invested or paid at the beginning ofeach period.

â¢ r is the annual interest rate, written as a decimal (ex: 6%=.06).

â¢ n is the number of times that interest is compounded peryear.

â¢ t is the number of years the money is invested orborrowed.

Suppose you invest P at the beginning of each month in aretirement account in hopes to save $600,000 for retirement at theage of 65. For both the annual rates r = 3.2% and r = 8.05%,compounded monthly, find the amount of money you will need toinvest per month:

A. if you start this process as soon as you turn 23 (so youinvest for 42 years total).

B. if you start this process as soon as you turn 30 (so youinvest for 35 years total).

C. if you start this process as soon as you turn 40 (so youinvest for 25 years total).

crimsonhamster738

ACCT I S 100 Chapter Notes - Chapter Appendix D: Interest

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