ACCT 284 at Iowa State University


1 What is Present Value
What does the "present value of money" actually mean? Why are we calculating it and why do we spend so much time talking about it?
2 Simple vs Compound
Compound interest is the most powerful force in the universe. -Einstein
3 PV of a Lump Sum
A lump sum is a single amount of money that we're trying to figure out the value of. $4,000 in ten years is different than $4,000 today. Using the present value of a lump sum, we can figure out how much that $4,000 in ten years will be worth today.
4 PV of a Lump Sum
We're gonna do another PV of a lump sum problem, and this time you need to watch out for the compounding frequency.
5 Ordinary Annuity
An ordinary annuity is just a series of regular payments over some period of time.
6 Purchasing with an Annuity
Often times, a company will buy equipment but not pay for the full amount up front. In this way, a company can purchase equipment using an ordinary annuity.
7 Finding the Payment
If you already know the present value of the annuity, how can you find the payment amount? That's what we'll tackle in this problem.