ACCT 2101 Chapter Notes - Chapter 12: Compound Interest, Interest, Interest Rate

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beigewildebeest137

12 Apr 2018

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Is payment for the use of another person money: amount borrowred (invested) amount repaid (collected, usually stated as a rate over a specific period of time. Interest rate always stated as annual rate: compounding period time period between interest calculations. Can be done annually, semi-annually, quarterly, monthly, daily or continuously: use time value of money to compute: Future value of a single payment the value at a future date of a given amount invested. Future value of an ordinary annuity the sum of all the payments plus the accumulated compound interest on them: present value concepts. Present value of a single payment is the value now of a given amount to be paid or received in the future, assuming compound interest. Facts: borrow ,000 repay in 2 years with interest at 12% Simple interest: year 1: ,000 * . 12 = ,200, year 2: ,000 * . 12 = ,200, total interest: ,400.

Related Questions

The Landers Corporation needs to raise $1.6 million of debt on a 20-year issue. If it places the bonds privately, the

interest rate will be 10 percent. Twenty thousand dollars in out-of-pocket costs will be incurred. For a public issue,

the interest rate will be 9 percent, and the underwriting spread will be 2 percent. There will be $120,000 in

out-of-pocket costs. Assume interest on the debt is paid semiannually, and the debt will be outstanding for the

full 20-year period, at which time it will be repaid.

Which plan offers the higher net present value? For each plan, compare the net amount of funds initially

availableâinflowâto the present value of future payments of interest and principal to determine net present

value. Assume the stated discount rate is 12 percent annually, but use 6 percent semiannually throughout the

analysis. (Disregard taxes.)

greendinosaur896

Select the term that best fits each of the following definitions and descriptions.

a.	Notes receivable
b.	Nontrade receivables
c.	Net realizable value
d.	Direct write-off method
e.	Interest-bearing note
f.	Maturity date
g.	Promissory note
h.	Factoring receivables
i.	Trade discount
j.	Present value
k.	Allowance method
l.	Sales discount
m.	Negotiable note
n.	Non-interest-bearing note
o.	Assignment of receivables
p.	Valuation date

____ 21. Receivables that are evidenced by a formal written promise to pay a certain sum of money at a specified date.

____ 22. The date the principal amount of a note is due to be paid.

____ 23. The sum of future receipts or payments discounted to the present date at an appropriate rate of interest.

____ 24. A method of recognizing the estimated losses from uncollectible accounts as expenses during the period in which the sales occur.

____ 25. A note that is legally transferable by endorsement and delivery.

____ 26. Any receivable arising from transactions that are not directly associated with the normal operating activities of a business.

____ 27. A note written in the form where the face amount includes the interest charges.

____ 28. The borrowing of money with receivables pledged as security on the loan.

____ 29. A note written in the form where the maker promises to pay the face amount plus interest at a specified rate.

____ 30. An unconditional written promise to pay a certain sum of money at a specified time.

ochrecricket36

using the annuityformula:

F = (Pn/r)[(1 + (r/n))^nt+1 â 1]

where:

F is the future value of ALL of theinvestments/loans, including interest.

â¢ P is the principal amount invested or paid at the beginning ofeach period.

â¢ r is the annual interest rate, written as a decimal (ex: 6%=.06).

â¢ n is the number of times that interest is compounded peryear.

â¢ t is the number of years the money is invested orborrowed.

Suppose you invest P at the beginning of each month in aretirement account in hopes to save $600,000 for retirement at theage of 65. For both the annual rates r = 3.2% and r = 8.05%,compounded monthly, find the amount of money you will need toinvest per month:

A. if you start this process as soon as you turn 23 (so youinvest for 42 years total).

B. if you start this process as soon as you turn 30 (so youinvest for 35 years total).

C. if you start this process as soon as you turn 40 (so youinvest for 25 years total).

crimsonhamster738

ACCT 2101 Chapter Notes - Chapter 12: Compound Interest, Interest, Interest Rate

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