Summary of financial accounting. The summary is about chapter 5, 10, and 11 of the Principles of managerial finance book. It also contains all the formulas from the chapters mentioned.
, Chapter 5 time value of money
Learning goal 1 discuss the role of time value in finance, the use of computational tools, and the basic
patterns of cash flow
Learning goal 2 understand the concepts of future value and present value, their calculation for
single cash flow amounts and the relationship between them
Learning goal 3 find the future value and the present value of both and ordinary annuity and an
annuity due, and find the present value of a perpetuity.
Learning goal 4 calculate both the future value and the present value of a mixed stream of cash flows
Learning goal 5 understand the effect that compounding interest more frequently than annually has
on future value and on the effective annual rate of interest
Learning goal 6 describe the procedures involved in (1) determining deposits needed to accumulate a
future sum (2) loan amortization, (3) finding interest or growth rates, and (4) finding an unknown
number of periods
5.1 the role of time value in finance
Future value versus present value
Timeline a horizontal line on which time appears at the leftmost end and future periods are marked
from left to right; can be used to depict investment cash flows.
Basic patterns of cash flow
Single amount: a lump sum either currently held or expected at some future date
Annuity: a level periodic stream of cash flow.
Mixed stream: a stream of cash flow that is not an annuity; a steam of unequal periodic cash flows
that reflect no particular pattern.
5.2 single amounts
Future value of a single amount
Future value the value on some future date of money that you invest today
Compound interest interest that is earned on a given deposit and has become part of the principle at
the end of a specified period.
Principal the amount of money which interest is paid
n
Future value = FV n=PV 0 X (1+r )
FV = future value after n periods
PV = initial principal, or present value when time = 0
R = annual rate of interest
N = number of periods (typically years) that the money remains invested
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller juliaqian. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $4.88. You're not tied to anything after your purchase.
