- Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return.
- Discounting is the process of determining the present value of future cash flows.
- The document provides examples of using formulas to calculate future and present values under different interest rates and time periods, demonstrating the impact of compounding.
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,
What is the 'Time Value of Money - TVM'
The time value of money (TVM) is 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. TVM is also referred to as present discounted value.
BREAKING DOWN 'Time Value of Money - TVM'
Money deposited in a savings account earns a certain interest rate. Rational investors prefer to receive money today rather than the same amount of money in the future because of money's potential to grow in value over a given period of time. Money earning an interest rate is said to be compounding in value.
BREAKING DOWN 'Compound Interest'
Compound Interest Formula
Compound interest is calculated by multiplying the principal amount by one plus the annual interest rate raised to the number of compound periods minus one.The total initial amount of the loan is then subtracted from the resulting value.
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,
What is the 'Time Value of Money - TVM'
The time value of money (TVM) is 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. TVM is also referred to as present discounted value.
BREAKING DOWN 'Time Value of Money - TVM'
Money deposited in a savings account earns a certain interest rate. Rational investors prefer to receive money today rather than the same amount of money in the future because of money's potential to grow in value over a given period of time. Money earning an interest rate is said to be compounding in value.
BREAKING DOWN 'Compound Interest'
Compound Interest Formula
Compound interest is calculated by multiplying the principal amount by one plus the annual interest rate raised to the number of compound periods minus one.The total initial amount of the loan is then subtracted from the resulting value.
time value of money
,
concept of time value of money
,
significance of time value of money
,
present value vs future value
,
solve for the present value
,
simple vs compound interest rate
,
nominal vs effective annual interest rates
,
future value of a lump sum
,
solve for the future value
,
present value of a lump sum
,
types of annuity
,
future value of an annuity
TVM, Future Value Interest Factor (FVIF), Present Value Interest Factor (PVIF), present value interest factor of an annuity (PVIFA)
Using estimated rates of return, you can compare the value of the annuity payments to the lump sum.
The present value interest factor may only be calculated if the annuity payments are for a predetermined amount spanning a predetermined range of time.
Time Value of Money Formula
FV = PV x [ 1 + (i / n) ] (n x t)
Formula for Future Value Interest factor:
FVIF = (1+r)n
Formula for PVIF
PVIF = 1 / (1 + r)n
time value of money
,
concept of time value of money
,
significance of time value of money
,
present value vs future value
,
solve for the present value
,
simple vs compound interest rate
,
nominal vs effective annual interest rates
,
future value of a lump sum
,
solve for the future value
,
present value of a lump sum
,
types of annuity
,
future value of an annuity
TVM, Future Value Interest Factor (FVIF), Present Value Interest Factor (PVIF), present value interest factor of an annuity (PVIFA)
Using estimated rates of return, you can compare the value of the annuity payments to the lump sum.
The present value interest factor may only be calculated if the annuity payments are for a predetermined amount spanning a predetermined range of time.
Time Value of Money Formula
FV = PV x [ 1 + (i / n) ] (n x t)
Formula for Future Value Interest factor:
FVIF = (1+r)n
Formula for PVIF
PVIF = 1 / (1 + r)n
ACG 2021 Final Assessment Short Answer. 8 points each.docxbobbywlane695641
ACG 2021 Final Assessment
Short Answer. 8 points each.
1. Why is the separation of duties an important control activity in a good system of internal control?
2. How is the account Allowance for Uncollectible Accounts presented in the financial statements, and what
purpose does this presentation serve?
3. What is goodwill and when may it be recorded?
4. A company enters into a contract to purchase a certain quantity of goods from another company during the
following month. At this point, would a liability exist? Explain why or why not.
5. When a bond sells at a premium, what is probably true about the market interest rate versus the face interest
rate? Discuss.
6. When a bond sells at a discount, what is probably true about the market interest versus the face interest rate?
Discuss.
Problems
1. Prepare in proper form the stockholders' equity section of the balance sheet from the following selected
accounts and balances taken from the adjusted trial balance of Cooper Corporation as of December 31, 20x5.
17 Points.
Partial Adjusted Trial Balance
Account Debit Credit
Common Stock—$10 par value, 200,000 shares authorized, 110,000
shares issued and outstanding 1,100,000
Preferred Stock—$100 par value, 9 percent cumulative, 40,000 shares
authorized, 8,000 shares issued and outstanding 800,000
Additional Paid-in Capital, Preferred 30,000
Additional Paid-in Capital, Common 800,000
Retained Earnings 180,000
2. The following 20x5 information relates to Taylor, Inc.: 8 points each.
Net Income $365,000
Depreciation Expense 96,000
Amortization of Intangible Assets 11,000
Beginning Accounts Receivable 420,000
Ending Accounts Receivable 439,000
Beginning Inventory 516,000
Ending Inventory 560,000
Beginning Prepaid Expenses 48,000
Ending Prepaid Expenses 42,000
Beginning Accounts Payable 119,000
Ending Accounts Payable 146,000
Purchase of Long-Term Assets for Cash 616,000
Cash from Issuance of Long-Term Debt 200,000
Issuance of Stock for Cash 160,000
Issuance of Stock for Long-Term Assets 110,000
Purchase of Treasury Stock 64,000
Sale of Long-Term Investment at Cost 39,000
a. Calculate the net cash flows from operating activities. Show your work.
b. Calculate the net cash flows from investing activities. Show your work.
c. Calculate the net cash flows from financing activities. Show your work.
d. Calculate the net change in cash. Show your work.
WRITING ASSIGNMENT / PROJECT
Topic: Time Value of Money
A. Write a 6 page paper on the subject.
Outline of a ‘research project’:
Section 1: Theory
In section 1 of your document, you should examine where, when, and by who your particular research topic was conceived and what it ‘looked’ like at that time. Your research should include the seminal work that laid the foundation for your topic.
Section 2: Present
In section 2 of your document, you should examine how t.
The time value of money is the concept that money available at the present time is worth more than the identical sum 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. Time Value of Money is also sometimes referred to as present discounted value.
Introduction to Financial Analytics -Fundamentals of Finance Class I
by Reuben Ray; reuben@pexitics.com
• Time value of money.
• Present value & future value of money.
• Applications of TVM (Time Value of Money)
• Annuity & perpetuity concepts.
• Introduction to financial statements.
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3.0 Project 2_ Developing My Brand Identity Kit.pptxtanyjahb
A personal brand exploration presentation summarizes an individual's unique qualities and goals, covering strengths, values, passions, and target audience. It helps individuals understand what makes them stand out, their desired image, and how they aim to achieve it.
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Improving profitability for small businessBen Wann
In this comprehensive presentation, we will explore strategies and practical tips for enhancing profitability in small businesses. Tailored to meet the unique challenges faced by small enterprises, this session covers various aspects that directly impact the bottom line. Attendees will learn how to optimize operational efficiency, manage expenses, and increase revenue through innovative marketing and customer engagement techniques.
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
Personal Brand Statement:
As an Army veteran dedicated to lifelong learning, I bring a disciplined, strategic mindset to my pursuits. I am constantly expanding my knowledge to innovate and lead effectively. My journey is driven by a commitment to excellence, and to make a meaningful impact in the world.
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Discover the innovative and creative projects that highlight my journey throu...dylandmeas
Discover the innovative and creative projects that highlight my journey through Full Sail University. Below, you’ll find a collection of my work showcasing my skills and expertise in digital marketing, event planning, and media production.
Memorandum Of Association Constitution of Company.pptseri bangash
www.seribangash.com
A Memorandum of Association (MOA) is a legal document that outlines the fundamental principles and objectives upon which a company operates. It serves as the company's charter or constitution and defines the scope of its activities. Here's a detailed note on the MOA:
Contents of Memorandum of Association:
Name Clause: This clause states the name of the company, which should end with words like "Limited" or "Ltd." for a public limited company and "Private Limited" or "Pvt. Ltd." for a private limited company.
https://seribangash.com/article-of-association-is-legal-doc-of-company/
Registered Office Clause: It specifies the location where the company's registered office is situated. This office is where all official communications and notices are sent.
Objective Clause: This clause delineates the main objectives for which the company is formed. It's important to define these objectives clearly, as the company cannot undertake activities beyond those mentioned in this clause.
www.seribangash.com
Liability Clause: It outlines the extent of liability of the company's members. In the case of companies limited by shares, the liability of members is limited to the amount unpaid on their shares. For companies limited by guarantee, members' liability is limited to the amount they undertake to contribute if the company is wound up.
https://seribangash.com/promotors-is-person-conceived-formation-company/
Capital Clause: This clause specifies the authorized capital of the company, i.e., the maximum amount of share capital the company is authorized to issue. It also mentions the division of this capital into shares and their respective nominal value.
Association Clause: It simply states that the subscribers wish to form a company and agree to become members of it, in accordance with the terms of the MOA.
Importance of Memorandum of Association:
Legal Requirement: The MOA is a legal requirement for the formation of a company. It must be filed with the Registrar of Companies during the incorporation process.
Constitutional Document: It serves as the company's constitutional document, defining its scope, powers, and limitations.
Protection of Members: It protects the interests of the company's members by clearly defining the objectives and limiting their liability.
External Communication: It provides clarity to external parties, such as investors, creditors, and regulatory authorities, regarding the company's objectives and powers.
https://seribangash.com/difference-public-and-private-company-law/
Binding Authority: The company and its members are bound by the provisions of the MOA. Any action taken beyond its scope may be considered ultra vires (beyond the powers) of the company and therefore void.
Amendment of MOA:
While the MOA lays down the company's fundamental principles, it is not entirely immutable. It can be amended, but only under specific circumstances and in compliance with legal procedures. Amendments typically require shareholder
2. Learning Objectives
. Understand what is Future Value
. Understand what is compounding
. Understand the impact of compounding on interest rate and time
. Understand present values.
. Understand discounting
. Understand the impact of discounting on interest rate and time
3. Introduction
Item Definition
1 Future value The future value of an asset in the future
2 Compounding The process where the value of an investment
increases because the revenue on both capital and
interest, earn interest as time passes.
It is a direct realization of the time value of money.
If we invest some money today, what will be the
amount we get at a future date.
3 Present value The current value of an asset in the future
4 Discounting The process of determining the Present Value of a
payment or a stream of payments that is to be
received in the future.
What should be the amount we need to invest
today, to get a specific amount in future.
5 Nominal interest rate The stated interest rate on a financial product
6 Effective annual
interest rate
The interest rate that is actually earned or
paid due to the result of compounding
6. Money and Time
Consider 2 persons :- (example 1)
Mr. A have $1,000 he put in his house for 10 years
Mr. B have $1,000 he put into a saving accounts for 10 years
at 10 % interest.
What are their future values?
Future values after 10 years :- Mr. A = $1,000 (no change)
Mr. B = $2,593.74
Future values depends on what you do with the current money
Year Beginning interest ending
1 1,000.00 100.00 1,100.00
2 1,100.00 110.00 1,210.00
3 1,210.00 121.00 1,331.00
4 1,331.00 133.10 1,464.10
5 1,464.10 146.41 1,610.51
6 1,610.51 161.05 1,771.56
7 1,771.56 177.16 1,948.72
8 1,948.72 194.87 2,143.59
9 2,143.59 214.36 2,357.95
10 2,357.95 235.79 2,593.74
7. Future value
Future value :- The value of an asset at a specific future date
Present value X ( 1 + interest rate )
where n is the number of years
n
Excel Formula =FV(Interest rate,time period,0, initial amount)
= FV(10%,10,0,1000)
= 2,594
Using Excel – formulas, financial
Ignore – sign, Excel treat FV as an investment function,
put $1,000 as an investment, to get $2,594
Using Financial Calculator
Enter 10 10 -1000 0
N I/Y PV PMT FV
2,594
9. Compounding
Consider example 1 Mr. B $1,000 for 10 years at 10 % interest :=–
Why after 10 years the FV is $ 2,594 and not $2,000
((1,000 + (10% *10 years * 1,000))
The answer = Characteristic of Compounding
= From 2nd year to 10th year the annual interest
calculation is based on previous years
accumulated balance of both principal and
interests compounded.
10. Compounding – Exercise 1
Your company has $ 1,000 extra cash and wish to put into
a fixed deposit account at 5% interest per annum.
What is the FV amount in 1 year, 3 years, 5 years and 10 years time ?
Use Excel or a financial calculator
12. Compounding and interest rate
Consider example 1 Mr. B under various interest rates : -
Future value increase :-
a) not directly proportional to interest rates
b) the higher the interest rate per se the more the growth
c) the lower the interest rate per se the lesser the growth
13. Compounding and time
Consider example 1 Mr. B under various time zones : -
Future value increase :-
a) not directly proportional to time
b) exponentially (more and more) in timeLife Insurance
EPF
14. FV - Exercise 2
You have $20,000.
a) If you put it into an account at 7 % interest annually,
how many years needed to get $30,000
b) if you put in for 10.25 years, how much you will get
c) How many years to get $30,000 if the interest is 3%
d) How many years to get $30,000 if the interest is 11%
e) What does this tell you about relationship among
interest rates, time and FV
15. FV - Answer 2 a
a) Excel = 6 years (RM30,014.61) 7% 6 years, get $30,000
b) Excel = S40,014 (RM40,014.16) 7% 10.25 years get $40,000
c) Excel = 13.8 years (RM30,073.48) 3% 13.8 years get $30,000
d) Excel = 3.9 years (RM30,046.20) 11% 3.9 years get $30,000
= FV(7%,6,0,20000)
= FV(7%,10.25,0,20000)
= FV(3%,13.8,0,20000)
= FV(11%,3.9,0,20000)
Recall =FV(interest,period,0,PV)
Solving for period is tough, so we use trial and error :-
16. FV - Answer 2 b
AVG Interest
per year
7% 6 years, get $30,000 $1,667
7% 10.25 years get $40,000 $1,951 Longer time
3% 13.8 years get $30,000 $724 Low interest rate
11% 3.9 years get $30,000 $2,564 High interest rate
17. Compounding – occurrence frequencies
We have seen compounding on annual basis.
Consider compounding on a daily, weekly, monthly, quarterly, semi annually.
The formula :-
FV = Present value X ( 1 + Annual interest rate (i) )
Compounding periods
per year (m)
where n is the number of years
m is the number of periods in the year
mn
The corresponding period is thus 365, 52, 12, 4, 2
18. Compounding – occurrence frequencies
Present value 1,000 1,000 1,000 1,000 1,000 1,000
Interest rate 10% 10% 10% 10% 10% 10%
Years 10 10 10 10 10 10
Interest compounded Daily weekly monthly quarterly semi annually annually
Compounding period 365 52 12 4 2 1
Future Value -2,718 -2,716 -2,707 -2,685 -2,653 -2,594
=FV(10%/12,10*12,0,1000)
Compare Monthly vs Annually = FV 4.4 % more for monthly
Present value 1,000 1,000 1,000 1,000 1,000 1,000
Interest rate 2% 3% 5% 7% 8% 10%
Years 10 10 10 10 10 10
Interest compounded Daily weekly monthly quarterly semi annually annually
Compounding period 365 52 12 4 2 1
Future Value -1,221 -1,350 -1,647 -2,002 -2,191 -2,594
=FV(2%/365,10*365,0,1000)
Compare 10 % annually vs 2 % daily = Interest rate drop 5 times but FV only drop 2 times
19. Compounding occurrence frquencies – Exercise 3
Your company has $ 100,000 extra cash and wish to put into
a fixed deposit account at 10% interest per annum.
What is the FV amount in 10 years time if the interest is compounded
daily, weekly, monthly, quarterly, semi annually and annually ?
Use Excel or a financial calculator
20. Compounding occurrence frquencies – Answer 3 (a)
Excel =FV(interest/compounding period per year,
Compounding period per year *number of years, 0, PV)
21. Compounding occurrence frequencies – Answer 3 (b)
Financial calculator
1) divide the yearly interest rate into each compounding period rate
2) input this rate into the calculator
Yearly Compounding Compounding
Rate Occurance Rate
10% 365 0.027397%
10% 52 0.192308%
10% 12 0.833333%
10% 4 2.5%
10% 2 5%
10% 1 10%
Enter 3650 0.027397 -100,000 0
520 0.192308
120 0.833333
40 2.5
20 5
10 10
N I/Y PV PMT FV
22. Compounding and other things – using Excel
Consider current market for wireless printer is 1,000
What will be the market if 10 % increase after 1, 2, 3, 4, 5 years ?
What will be the market if 10 % decrease after 1, 2, 3, 4, 5 years ?
Presentvalue 1,000 1,000 1,000 1,000 1,000
Rateincrease 10% 10% 10% 10% 10%
Years 1 2 3 4 5
FutureValue -1,100 -1,210 -1,331 -1,464 -1,611
Presentvalue 1,000 1,000 1,000 1,000 1,000
Ratedecrease -10% -10% -10% -10% -10%
Years 1 2 3 4 5
FutureValue -900 -810 -729 -656 -590
Increasing rate
Decreasing rate (put – sign at the rate)
23. Thoughts on Future Values and Compounding
1. Theoretically – sounds reasonable
2. Realistically - NO
= FV is on monetary unit and doesn’t consider inflation
= very few investment give constant rate of returns
over a long period except Preference Shares
and Debentures, Bonds and Treasury Bills.
They are low risk investments thus carrying
low rates of interest. So calculating FV
base on high interest rates are not realistic
= If the investment is in a foreign currency then there
is an additional risk of foreign exchange losses
or vice versa
25. Present Value
Recall :-
Future Value = Present value X ( 1 + interest rate )
where n is the number of years
Then :-
n
Present value = Future Value
( 1 + interest rate )
where n is the number of years
n
26. Present Value
Consider :-
Mr. C wants to have $1,000 in 10 years time.
What is the amount he has to put into a saving account now
at 10 % compounding interest?
Present value = Future Value
( 1 + interest rate ) n
where n is the number of years
= 1,000
(1 + 10 % )10
= 1000
2.59374
= 385.54
To the
Year power
1 1.10000
2 1.21000
3 1.33100
4 1.46410
5 1.61051
6 1.77156
7 1.94872
8 2.14359
9 2.35795
10 2.59374
27. Present value
Excel Formula =PV(Interest rate,time period,0, future value)
= PV(10%,10,0,1000)
= -385.54
Using Excel – formulas, financial
Ignore – sign, Excel treat PV as a investment function,
to get 1,000 need to outgo -385.54 now
Using Financial Calculator
Enter 10 10 -1000 0
N I/Y FV PMT PV
385.54
29. Discounting when periods are not known
Solving the period is difficult , there are 2 ways :-
a) Use trial and error of FV formula in Excel – input various periods
= FV(interest rate, period, payment, initial investment)
b) Use Excel formula in Excel
=NPER(interest, 0, - initial investment, FV needed)
(Initial investment must be – sign)
Rule of 72 – Roughly if you want to know how long it takes
for an investment to double :-
take 72 divide by interest rate
example 72/8 % = 9 years
30. Discounting when interest rate is not known
Solving the period is difficult , there are 2 ways :-
a) Use trial and error of FV formula in Excel – input various interest
= FV(interest rate, period, payment, initial investment)
b) Use Excel formula in Excel
=RATE(period, payment, - initial investment, FV needed)
(Initial investment must be – sign)
31. Present value - Exercise 4
You want to retire in 35 years with $2,000,000 and the bank is
offering 4 % interest rate compounded annually.
a) How much money you need to put in now
b) How many years you need to invest if the interest rate is 14%
and the initial investment is same as (a) above
c) What is the interest rate if you have only $200,000 now and
need $2,000,000 in 35 years time.
32. Present value - Answer 4
Recall =PV(Interest rate,time period,0, future value)
a) = PV(4%,35,0,2000000)
(RM506,830.94)=
= FV(14%,10.48,0,506830)
= 10.48 years
b)
Use trial and error to get period
= FV(6.8%,35,0,200000)
c)
Use trial and error to get interest
= 6.8 %
Recall =NPER(interest, 0, - initial investment, FV needed)
=NPER(14%,0,-506830,2000000)
= 10.48 years
=RATE(period, payment, - initial investment, FV needed)Recall
=RATE(35,0,-200000,2000000)
= 6.8 %