ACIS_2115_Appendix_C_Spring_2009_Slides

# ACIS_2115_Appendix_C_Spring_2009_Slides - ACIS 2115...

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ACIS 2115 – Appendix C Present and Future Value Concepts

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A do lla r re c e ive d to da y is  wo rth m o re  tha n a  do lla r  re c e ive d in the  future  b e c a us e  the  do lla r c a n b e   inve s te d to da y to  e a rn inte re s t. Tim e  va lue  o f m o ne y c o nc e pts  a re  us e d in m a ny  a c c o unting  a pplic a tio ns . Time Value of Money
Variables: 1. Principal (amount invested or borrowed) 2. Interest Rate ( i ) 3. Time (number of periods denoted n ) Compound Interest – Interest is earned on interest. Calculation of Interest

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On January 2, 2007, Mr. HK Byrd invests \$20,000 at a rate of 8%  compounded annually.  To what amount will this investment grow in 3  years? Amount at Amount at Date Start of Year Interest During the Year End of Year* Jan. 2007 \$20,000.00 2007 \$20,000 \$20,000 x 8% = \$1,600.00 \$21,600.00 2008 \$21,600 \$21,600 x 8% = \$1,728.00 \$23,328.00 2009 \$23,328 \$23,328 x 8% = \$1,866.24 \$25,194.24 Example *Amount at End of Period = Amount at Start of Period +  Interest Earned during the Period
Future Value = \$25,194.24 Present Value = \$20,000 Present Value and Future Value 0 1 2 3 Number of Periods Present Value = current value of an amount Future Value = the amount to which an amount will increase

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On January 2, 2007, Mr. HK Byrd invests \$20,000 at a rate of 8%  compounded annually.  To what amount will this investment grow in 3  years? In other words, what is the  future value  of the \$20,000 invested  at 8% compounded annually? = 20,000.00 \$ x (1 + i ) n = 20,000.00 \$ x (1 + .08) 3 = 25,194.24 \$ Example with Formula A formula can be used to calculate the future value as follows:
On January 2, 2007, Mr. HK Byrd invests \$20,000 at a rate of 8%  compounded annually.  To what amount will this investment grow in 3  years? In other words, what is the future value of the \$20,000 invested at  8% compounded annually? = 20,000.00

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## This note was uploaded on 08/30/2011 for the course ACIS 2115 taught by Professor Jayardley during the Spring '07 term at Virginia Tech.

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ACIS_2115_Appendix_C_Spring_2009_Slides - ACIS 2115...

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The provided text is a set of slides from a course on accounting, specifically discussing the time value of money and the concepts of present and future value. It includes an example of calculating the future value of an investment with compound interest.
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ACIS_2115_Appendix_C_Spring_2009_Slides

# ACIS_2115_Appendix_C_Spring_2009_Slides - ACIS 2115...

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ACIS 2115 – Appendix C Present and Future Value Concepts

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A do lla r re c e ive d to da y is  wo rth m o re  tha n a  do lla r  re c e ive d in the  future  b e c a us e  the  do lla r c a n b e   inve s te d to da y to  e a rn inte re s t. Tim e  va lue  o f m o ne y c o nc e pts  a re  us e d in m a ny  a c c o unting  a pplic a tio ns . Time Value of Money
Variables: 1. Principal (amount invested or borrowed) 2. Interest Rate ( i ) 3. Time (number of periods denoted n ) Compound Interest – Interest is earned on interest. Calculation of Interest

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On January 2, 2007, Mr. HK Byrd invests \$20,000 at a rate of 8%  compounded annually.  To what amount will this investment grow in 3  years? Amount at Amount at Date Start of Year Interest During the Year End of Year* Jan. 2007 \$20,000.00 2007 \$20,000 \$20,000 x 8% = \$1,600.00 \$21,600.00 2008 \$21,600 \$21,600 x 8% = \$1,728.00 \$23,328.00 2009 \$23,328 \$23,328 x 8% = \$1,866.24 \$25,194.24 Example *Amount at End of Period = Amount at Start of Period +  Interest Earned during the Period
Future Value = \$25,194.24 Present Value = \$20,000 Present Value and Future Value 0 1 2 3 Number of Periods Present Value = current value of an amount Future Value = the amount to which an amount will increase

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On January 2, 2007, Mr. HK Byrd invests \$20,000 at a rate of 8%  compounded annually.  To what amount will this investment grow in 3  years? In other words, what is the  future value  of the \$20,000 invested  at 8% compounded annually? = 20,000.00 \$ x (1 + i ) n = 20,000.00 \$ x (1 + .08) 3 = 25,194.24 \$ Example with Formula A formula can be used to calculate the future value as follows:
On January 2, 2007, Mr. HK Byrd invests \$20,000 at a rate of 8%  compounded annually.  To what amount will this investment grow in 3  years? In other words, what is the future value of the \$20,000 invested at  8% compounded annually? = 20,000.00

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## This note was uploaded on 08/30/2011 for the course ACIS 2115 taught by Professor Jayardley during the Spring '07 term at Virginia Tech.

### Page1 / 29

ACIS_2115_Appendix_C_Spring_2009_Slides - ACIS 2115...

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The provided text is a set of slides from a course on accounting, specifically discussing the time value of money and the concepts of present and future value. It includes an example of calculating the future value of an investment with compound interest.

TYPE: SINGLE_QUESTION_WITH_ANSWER