Flashcards in F5 Notecards (General) Deck (15):

1

## 6 Present Value Concepts

###
1- PV of $1

2- FV of $1

3- PV of an ordinary annuity

4- FV of an ordinary annuity

5- PV of an annuity due

6- FV of an annuity due

2

## Annuity definition

### A large number of business transactions involve multiple payments or receipts

3

## 2 Examples of annuities

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1- Bond Interest Payments

2- Lease Rental Payments

4

## Ordinary Annuity vs Annuity Due

###
Ordinary Annuity = due at END of year (AKA in arrears)

Annuity Due = due at BEGINNING of year

5

## If given an "Annuity Due" table and are asked for "Ordinary Annuity", what to do:

### Subtract 1 from annuity due = ordinary annuity

6

## Present Value Formula =

### Present value = future amount X present value factor

7

## Lessee definition and how they account for lease

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-The renter

-Accounts for rental as an operating lease

-Accounts for sale as capital lease (GAAP) or finance lease (IFRS)

8

## Lessor definition and how they account for lease

###
-The owner

-Accounts for rental as an operating lease

-Accounts for sale as sales-type or direct financing type (GAAP) or finance lease (IFRS)

9

## Face Value of Bond =

###
PV of future interest payments (@ market rate) (use PV of annuity)

PLUS

PV of principal (at market rate) (use PV of $1)

10

## Carrying Value of Bond with Premium =

### Face value + Unamortized premium

11

## Carrying Value of Bond with Discount =

### Face value - unamortized discount

12

## 2 Ways to account for discount/premium amortization

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1- Straight-line method

2- Effective interest rate method

13

## Straight-line method calculation =

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(Premium or discount) / # periods outstanding = amortization

Interest expense = (face value X stated rate) - premium amortization + discount amortization

14

## Effective Interest Rate Method Calculation

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I/S: net carry value X effective interest rate = interest expense

B/S: bond face X coupon rate = interest paid

Interest expense - interest paid = amortization

15