tailieunhanh - Lecture Issues in financial accounting – Lecture 25: Accounting and annuities

The contents of this chapter include all of the following: 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 and bonds, apply expected cash flows to present value measurement. | Accounting and Annuities PART II: Corporate Accounting Concepts and Issues Lecture 25 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 and bonds. Apply expected cash flows to present value measurement. Learning Objectives Annuities More Complex Situations Present Value Measurement Future value of ordinary annuity Future value of annuity due Examples of FV of annuity Present value of ordinary annuity Present value of annuity due Examples of PV of annuity Deferred annuities Valuation of long-term bonds Effective-interest method of bond discount/ premium amortization Choosing an appropriate interest rate Example of expected cash flow Accounting and the Time Value of Money Basic Annuities An annuity is a series of equal periodic payments. Period 1 Period 2 Period 3 Period 4 $10,000 $10,000 $10,000 $10,000 An annuity is a series of equal periodic payments. If you . | Accounting and Annuities PART II: Corporate Accounting Concepts and Issues Lecture 25 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 and bonds. Apply expected cash flows to present value measurement. Learning Objectives Annuities More Complex Situations Present Value Measurement Future value of ordinary annuity Future value of annuity due Examples of FV of annuity Present value of ordinary annuity Present value of annuity due Examples of PV of annuity Deferred annuities Valuation of long-term bonds Effective-interest method of bond discount/ premium amortization Choosing an appropriate interest rate Example of expected cash flow Accounting and the Time Value of Money Basic Annuities An annuity is a series of equal periodic payments. Period 1 Period 2 Period 3 Period 4 $10,000 $10,000 $10,000 $10,000 An annuity is a series of equal periodic payments. If you make a car payment or a house payment, you likely pay the same amount each month. Both of these are examples of a series of equal periodic payments or an annuity. Annuities Periodic payments or receipts (called rents) of the same amount, Same-length interval between such rents, and Compounding of interest once each interval. Annuity requires: LO 1 Solve future value of ordinary and annuity due problems. Ordinary Annuity - rents occur at the end of each period. Annuity Due - rents occur at the beginning of each period. Two Types LO 1 Solve future value of ordinary and annuity due problems. Future Value of an Ordinary Annuity Rents occur at the end of each period. No interest during 1st period. Annuities 0 1 Present Value 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 1 Solve future value of ordinary and annuity due problems. Illustration: Assume that $1 is deposited at the end of each of 5 years (an ordinary annuity) and earns 12% interest compounded