FAR - F5 Concepts Flashcards

1
Q

Equation: Present Value of $1

A

Present Value = Future Value/(1+r)^n

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2
Q

Equation: Future Value of $1

A

Future Value = Present Value*(1+r)^n

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3
Q

Equation: Present Value of an Ordinary Annuity

A

Present Value of Ordinary Annuity = Annuity Payment*Present Value of Ordinary Annuity of $1 for appropriate n and r

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4
Q

Equation: Present Value of an Annuity Due

A

Present Value of Annuity Due = Present Value of Ordinary Annuity*(1+r)

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5
Q

Equation: Future Value of an Ordinary Annuity

A

Future Value of an Ordinary Annuity = Periodic Payment*Future Value of an Ordinary Annuity of $1 for appropriate n and r

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6
Q

When no interest rate is stated on a note, how is the note handled?

A
  1. Use market rate %
  2. Record payable at face value
  3. Record asset at present value
  4. If a difference exists between the face value and the present value, the difference must be amortized using the effective interest method (like a mortgage)
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7
Q

Equation: Times Interest Earned

A

Times Interest Earned = Earnings before Interest and Taxes/Interest Expense

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