FAR - F5 Concepts Flashcards
Equation: Present Value of $1
Present Value = Future Value/(1+r)^n
Equation: Future Value of $1
Future Value = Present Value*(1+r)^n
Equation: Present Value of an Ordinary Annuity
Present Value of Ordinary Annuity = Annuity Payment*Present Value of Ordinary Annuity of $1 for appropriate n and r
Equation: Present Value of an Annuity Due
Present Value of Annuity Due = Present Value of Ordinary Annuity*(1+r)
Equation: Future Value of an Ordinary Annuity
Future Value of an Ordinary Annuity = Periodic Payment*Future Value of an Ordinary Annuity of $1 for appropriate n and r
When no interest rate is stated on a note, how is the note handled?
- Use market rate %
- Record payable at face value
- Record asset at present value
- 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)
Equation: Times Interest Earned
Times Interest Earned = Earnings before Interest and Taxes/Interest Expense