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sssAppendix B
Applying
Present and Future Values
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Student Learning Objectives and
Related Assignment Materials
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Student Learning
Objectives
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Quick Studies
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Exercises
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Conceptual
objectives:
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C1. Describe the
earning of interest and the concepts of present and future values.
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B-1
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B-14, B-19
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Procedural
objectives:
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P1. Apply present value concepts
to a single amount by using interest tables. |
B-2, B-3, B-4
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B-8, B-9, B-10,
B-11, B-12, B-19
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P2. Apply future value concepts to
a single amount by using interest tables. |
B-5
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B-1, B-2, B-12,
B-15, B-17, B-18, B-19
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P3. Apply present value concepts
to an annuity by using interest tables. |
B-6
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B-3, B-4, B-7,
B-8, B-10, B-12, B-13, B-14, B-19
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P4. Apply future value concepts to an annuity by using interest
tables.
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B-7
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B-5, B-6, B-12, B-16,
B-17, B-19
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* Assignment materials that can be completed
by students using:
R McGraw-Hill’s Connect – All of the Quick Studies and all of the
Exercises.
Appendix Outline
I.
Present Value and Future Value Concepts
A.
As time passes, certain
assets and liabilities that are held grow.
B.
Growth is due to interest.
C.
Present and future value
computations are a way for us to measure or estimate the interest component
of holding assets or liabilities over time.
II. Present Value of a Single Amount
A. The
present value of a single amount received at a future date is the amount that
can be invested now at the specified interest rate to yield that future
value.
B.
A table of present values for
a single amount shows the present values of $1 for a variety of interest
rates and a variety of time periods that will pass before the $1 is received.
III.
Future Value of a Single Amount
A. The
future value of a single amount invested at a specified rate of interest is
the amount that would accumulate by the future date.
B.
A table of future values of a
single amount shows the future values of $1 invested now at a variety of
interest rates for a variety of time periods.
IV.
Present Value of an Annuity
A. An
ordinary annuity is defined as
equal end-of-period payments at equal intervals.
B. The
present value of an annuity is the amount that can be invested now at the
specified interest rate to yield that series of equal periodic payments.
C.
A table of present values for
an annuity shows the present values of annuities where the amount of each
payment is $1 for different numbers of periods and a variety of interest
rates.
V. Future Value of an Annuity
A. The
future value of an annuity invested at a specified rate of interest is the
amount that would accumulate by the date of the final payment.
B. A
table of future values for an annuity shows the future values of annuities
where the amount of each payment is $1 for different numbers of periods and a
variety of interest rates.
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Notes |
Appendix B – Alternate
Demonstration Problem #1
Sarah
Blue has the three options:
1.
Receiving $1,000 per year for the next
10 years,
2.
Receiving $6,000 in cash immediately,
or
3.
Receiving $10,000 in cash after 5
years.
Required:
Assuming
that the current interest rate is 10%, and that Blue wants the option that
yields the highest present value, which option should she choose?
Solution: Appendix B –
Alternate Demonstration Problem #1
1.
Receiving $1,000 per year for the next
10 years:
The
present value of $1,000 received annually for 10 years discounted at 10% equals
$6,145.
2.
Receiving $6,000 in cash immediately:
The
present value of $6,000 received now is $6,000.
3.
Receiving $10,000 in cash after 5
years:
The
present value of $10,000 to be received five years from now is $6,209.
Since option #3 has the highest present
value, Blue should choose to receive $10,000 five years from now.
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