This document discusses accounting topics related to the time value of money, including compound interest, future and present value calculations, annuities, and bond valuation. It provides learning objectives and examples to distinguish between simple and compound interest, use interest tables, solve single-sum and annuity problems, and apply time value of money concepts to accounting measurements.
Valuation of Inventories: A Cost-Basis Approachreskino1
Describe inventory classifications and different inventory systems.
Identify the goods and costs included in inventory.
Compare the cost flow assumptions used to account for inventories.
Determine the effects of inventory errors on the financial statements.
Valuation of Inventories: A Cost-Basis Approachreskino1
Describe inventory classifications and different inventory systems.
Identify the goods and costs included in inventory.
Compare the cost flow assumptions used to account for inventories.
Determine the effects of inventory errors on the financial statements.
this is a lecture on time value of money which explains the topic time value of money in a very easy and simple way... it also explains some examples on the topic... plus definition of rate of return, real rate of return, inflation premium, nominal interest rate,market risk, maturity risk,liquidity risk,and default risk,
Accounting and the Time Value of Money
After studying this chapter, you should be able to:
Describe the fundamental concepts related to the time value of money.
Solve future and present value of 1 problems.
Solve future value of ordinary and annuity due problems.
Solve present value of ordinary and annuity due problems.
Solve present value problems related to deferred annuities, bonds, and expected cash flows.
QUESTION 1 ● When interest rate changes, the impact on a b.docxpoulterbarbara
QUESTION 1
● When interest rate changes, the impact on a bank’s earnings depends on the repricing of
their assets or liabilities.
2.
Loan A (7%, 1 year) = $100 Deposit A (2.5%, 3 months) = $250
Loan B (10%, 2 years) = $200 Deposit B (5%, 1 year) = $ 50
Total Assets = $300 Total Liabilities = $300
The net interest margin or spread
1
2
3
4
5
6
7
8
9
1
1 points
QUESTION 2
1. The average maturity of its assets is larger than that of its deposits, as is typical of most banks.
There is a
reinvestment
risk
re-finance
risk
re-pricing risk
default risk
1 points
QUESTION 3
1. The average duration of its assets is longer than that of its liabilities. There is a
reinvestment
risk
re-finance
risk
re-pricing risk
basis point
risk
1 points
QUESTION 4
1. If the loan interest rate adjusts every quarter and the deposit interest rate adjust every six
months, the risk of interest rate from the different frequencies of rate adjustments is called
Repricing
risk
yield -curve
risk
basis point
risk
default risk
1 points
QUESTION 5
1. If the loan interest rate is 4 % mark-up on the 6 month treasury bill and the deposit interest rate is
1% mark-up on the 3 month treasury bill, the risk of interest rate like this is called
Repricing
risk
yield -curve
risk
basis point
risk
default risk
1 points
QUESTION 6
1. Consider a bank that borrows $100 million in deposits at a floating rate of T-Bill plus 2% and
lends at LIBOR plus 4%. Both rates are reset semi-annually. Normally, both rates move together. Assume
the 3-month LIBOR rate was 3.40% and the 3-month T-Bill rate was 3.0% when the loan was disbursed.
The spread is given as follows
1
2
3
4
1 points
QUESTION 7
1. Assume a bank has the following balance sheet. Determine the 2-year GAP.
Asset Amou
n
t
Liability Amoun
t
Cash $100 90-day
CDs
$100
6-month
Gbo
nds
$400 360-day
CDs
$200
2-year
commer
cial
loans
$400 Time
Deposi
ts 2-
year
$900
5-year
fixed
rate
loan
s
$500 Stockholde
r’
s equity
$200
Total $1,40
0
Total $1,400
2.
GAP = (RSA2 yr – RSL2 yr)
0
-
-
-
-
1 points
QUESTION 8
1. Assume a bank has the following balance sheet. When both the deposit rate and loan rate
change by 2%, determine the 1-year net impact on net interest income (ΔNII)
Asset Amou
n
t
Liability Amoun
t
Cash $100 90-day
CDs
$100
6-month
Gbo
nds
$400 360-day
CDs
$200
2-year
commer
cial
loans
$400 Time
Deposi
ts 2-
year
$900
5-year
fixed
rate
loan
s
$500 Stockholde
r’
s equity
$200
Total $1,40
0
Total $1,400
2.
ΔNII = (RSA1-year – RSL1-year)* (.02)
1 points
QUESTION 9
1. Assume .
The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received.
Learning Objectives
After studying this chapter, you should be able to:
[1] Indicate the benefits of budgeting.
[2] Distinguish between simple and compound interest.
[2] Identify the variables fundamental to solving present value problems.
[3] Solve for present value of a single amount.
[4] Solve for present value of an annuity.
[5] Compute the present value of notes and bonds.
Emerging Ethical Issues
XXXXXX
September 8, 2014
xxxxx
By: Team A
Eugene Adamos, Delano Chambers, Chantle Ferguson, Kelli Lee, April Porter
Introduction
Team A
2
References
Team A
3
What issues involve problems with consent?
Team A
4
Questions assigned in this assignment are similar to problems assigned above. However, the numbers in these questions are different from your textbook.
You must show the work to get full credit in each question.
Assigned problems:
Problem 5-9
Bond Valuation and Interest Rate Risk
The Garraty Company has two bond issues outstanding. Both bonds pay $100 annual interest plus $1,000 at maturity. Bond L has a maturity of 15 years, and Bond S has a maturity of 1 year.
a.
1. What will be the value of each of these bonds when the going rate of interest is 4%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent.
Bond L
$
Bond S
$
2. What will be the value of each of these bonds when the going rate of interest is 7%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent.
Bond L
$
Bond S
$
3. What will be the value of each of these bonds when the going rate of interest is 11%? Assume that there is only one more interest payment to be made on Bond S. Round your answers to the nearest cent.
Bond L
$
Bond S
$
Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)?
I. Longer-term bonds have more interest rate risk than shorter-term bonds.
II. Shorter-term bonds have more interest rate risk than longer-term bonds.
III. Longer-term bonds have more reinvestment rate risk than shorter-term bonds.
Problem 5-12
Bond Yields and Rates of Return
A 25-year, 8% semiannual coupon bond with a par value of $1,000 may be called in 4 years at a call price of $1,100. The bond sells for $950. (Assume that the bond has just been issued.)
a. What is the bond's yield to maturity? Round your answer to two decimal places.
b. What is the bond's current yield? Round your answer to two decimal places.
c. What is the bond's capital gain or loss yield? Loss should be indicated with minus sign. Round your answer to two decimal places.
d. What is the bond's yield to call? Round your answer to two decimal places.
Problem 5-23
Determinants of Interest Rates
Suppose you and most other investors expect the inflation rate to be 6% next year, to fall to 4% during the following year, and then to remain at a rate of 3% thereafter. Assume that the real risk-free rate, r*, will remain at 2% and that maturity risk premiums on Treasury securities rise from zero on very short-term securities (those that mature in a few days) to a level of 0.2 percentage points for 1-year securities. Furthermore, maturity risk premiums ...
This is the third presentation for the University of New England Graduate School of Business unit GSB711 - Managerial Finance. It explores the time value of money, using examples to help students clarify this concept.
1. Accounting and the Time Value of Money Chapter 6 Intermediate Accounting 12th Edition Kieso, Weygandt, and Warfield Prepared by Coby Harmon, University of California, Santa Barbara
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4. Basic Time Value Concepts In accounting (and finance), the term indicates that a dollar received today is worth more than a dollar promised at some time in the future. Time Value of Money LO 1 Identify accounting topics where the time value of money is relevant.
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8. Simple Interest LO 2 Distinguish between simple and compound interest. ILLUSTRATION continued: On March 31, 2007, Tomalczyk borrows $20,000 for 3 years at a rate of 7% per year. Calculate the interest cost for the year ending December 31, 2007. Principal $20,000 Interest rate x 7% Annual interest $ 1,400 Partial year x 9/12 Interest for 9 months $ 1,050 PARTIAL YEAR
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10. Compound Interest LO 2 Distinguish between simple and compound interest. ILLUSTRATION: On January 2, 2007, Tomalczyk borrows $20,000 for 3 years at a rate of 7% per year. Calculate the total interest cost for all three years, assuming interest is compounded annually.
11. Compound Interest Tables LO 3 Use appropriate compound interest tables. Table 1 - Future Value of 1 Table 2 - Present Value of 1 Table 3 - Future Value of an Ordinary Annuity of 1 Table 4 - Present Value of an Ordinary Annuity of 1 Table 5 - Present Value of an Annuity Due of 1 Five Tables in Chapter 6 Number of Periods = number of years x the number of compounding periods per year. Compounding Period Interest Rate = annual rate divided by the number of compounding periods per year.
12. Compound Interest LO 3 Use appropriate compound interest tables. Compounding can substantially affect the rate of return. A 9% annual interest compounded daily provides a 9.42% yield. How compounding affects Effective Yield for a $10,000 investment. Illustration 6-5
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14. Single-Sum Problems LO 5 Solve future and present value of 1 problems. Unknown Future Value Generally Classified into Two Categories Unknown Present Value
15. Single-Sum Problems LO 5 Solve future and present value of 1 problems. Future Value of a Single Sum Multiply the future value factor by its present value ( principal ). Illustration: BE6-1 Steve Allen invested $10,000 today in a fund that earns 8% compounded annually . To what amount will the investment grow in 3 years?
16. Single-Sum Problems BE6-1 Steve Allen invested $10,000 today in a fund that earns 8% compounded annually . To what amount will the investment grow in 3 years? 0 1 2 3 4 5 6 Present Value $10,000 What table do we use? Future Value? LO 5 Solve future and present value of 1 problems.
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19. Single-Sum Problems LO 5 Solve future and present value of 1 problems. PROOF - Future Value of a Single Sum BE6-1 Steve Allen invested $10,000 today in a fund that earns 8% compounded annually . To what amount will the investment grow in 3 years?
20. Single-Sum Problems BE6-1 Steve Allen invested $10,000 today in a fund that earns 8% compounded semiannually . To what amount will the investment grow in 3 years? 0 1 2 3 4 5 6 Present Value $10,000 What table do we use? Future Value? LO 5 Solve future and present value of 1 problems.
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23. Single-Sum Problems LO 5 Solve future and present value of 1 problems. Present Value of a Single Sum Multiply the present value factor by the future value. Illustration: BE6-2 Itzak Perlman needs $20,000 in 4 years. What amount must he invest today if his investment earns 12% compounded annually?
24. Single-Sum Problems BE6-2 Itzak Perlman needs $20,000 in 4 years. What amount must he invest today if his investment earns 12% compounded annually ? 0 1 2 3 4 5 6 Present Value? What table do we use? Future Value $20,000 LO 5 Solve future and present value of 1 problems.
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27. Single-Sum Problems BE6-2 Itzak Perlman needs $20,000 in 4 years. What amount must he invest today if his investment earns 12% compounded quarterly ? 0 1 2 3 4 5 6 Present Value? What table do we use? Future Value $20,000 LO 5 Solve future and present value of 1 problems.
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32. Future Value of an Ordinary Annuity BE6-13 Bayou Inc. will deposit $20,000 in a 12% fund at the end of each year for 8 years beginning December 31, Year 1. What amount will be in the fund immediately after the last deposit? 0 1 Present Value What table do we use? 2 3 4 5 6 7 8 $20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 Future Value LO 6 Solve future value of ordinary and annuity due problems.
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36. Future Value of an Annuity Due Bayou Inc. will deposit $20,000 in a 12% fund at the beginning of each year for 8 years beginning January 1, Year 1. What amount will be in the fund at the end of Year 8? 0 1 Present Value What table do we use? 2 3 4 5 6 7 8 $20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 Future Value LO 6 Solve future value of ordinary and annuity due problems.
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40. Present Value of an Ordinary Annuity Jaime Yuen wins $2,000,000 in the state lottery. She will be paid $100,000 at the end of each year for the next 20 years. How much has she actually won? Assume an appropriate interest rate of 8%. 0 1 Present Value What table do we use? 2 3 4 19 20 $100,000 100,000 100,000 100,000 100,000 . . . . . LO 7 Solve present value of ordinary and annuity due problems. 100,000
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44. Present Value of an Annuity Due Jaime Yuen wins $2,000,000 in the state lottery. She will be paid $100,000 at the beginning of each year for the next 20 years. How much has she actually won? Assume an appropriate interest rate of 8%. 0 1 Present Value What table do we use? 2 3 4 19 20 $100,000 100,000 100,000 100,000 100,000 . . . . . LO 7 Solve present value of ordinary and annuity due problems. 100,000
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49. Valuation of Long-Term Bonds BE6-15 Arcadian Inc. issues $1,000,000 of 7% bonds due in 10 years with interest payable at year-end. The current market rate of interest for bonds is 8%. What amount will Arcadian receive when it issues the bonds? 0 1 Present Value 2 3 4 9 10 70,000 70,000 70,000 $70,000 . . . . . 70,000 1,070,000 LO 8 Solve present value problems related to deferred annuities and bonds.
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52. Valuation of Long-Term Bonds BE6-15 Arcadian Inc. issues $1,000,000 of 7% bonds due in 10 years with interest payable at year-end. LO 8 Solve present value problems related to deferred annuities and bonds. Present value of Interest $469,706 Present value of Principal 463,190 Bond current market value $932,896
1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases). Forward-looking Information Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image). Timeliness (no real time financial information)
Service Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation. Interest on Liability - Interest accrues each year on the PBO just as it does on any discounted debt. Actual Return on Plan Assets - Increase in pension funds from interest, dividends, and realized and unrealized changes in the fair market value of the plan assets. Amortization of Unrecognized Prior Service Cost - The cost of providing retroactive benefits is allocated to pension expense in the future, specifically to the remaining service-years of the affected employees. Gain or Loss - Volatility in pension expense can be caused by sudden and large changes in the market value of plan assets and by changes in the projected benefit obligation. Two items comprise the gain or loss: difference between the actual return and the expected return on plan assets and, amortization of the unrecognized net gain or loss from previous periods