# Accounting 2 – ACCT 122 – Program #212 – Time Value of Money (continued)

>>> > Hi, we are back and also we are discussing
time worth of cash. Do any of you like time value of money? It'' s sort of a nice revitalizing topic to step
away, maybe, from guide for a little bit. Step away from power points for a bit. So like I stated, 12, 13 and 15, the chapters
can be a little dry, so this is constantly type of a wonderful little sanctuary in the desert, so to
> > Grand. Allow ' s go over the solutions, all right? Allow ' s go over the responses.
in class? >>> > Yeah. > > Yeah, that ' s what I believed. Okay. Okay. There are the solutions to number 1 and also number.
2, okay? Always ask yourselves, step back after you'' ve.
the test is they'' ll obtain in a rush on that particular table and they will certainly pull the wrong number.
off of there, all right? So see to it you pull the ideal one.Okay, now

, number 3, would you instead have.
\$ 500 now or \$1,000 10 years from currently? You could gain 9% on any kind of financial investment. Come off that momentarily if you would. They'' re stating, would you rather have \$500.
in year absolutely no, today, or \$1,000 in 10 years? Well, you can'' t contrast those because they ' re. Different times? You can fix this response in two means. You can either take that \$500 and also figure out.
the future worth it and then compare them, did anyone do that? Okay. Or what I did, is you can locate the present.
That'' s what I did down here. Okay?
the here and now worth of the \$1,000 in 10 years, the existing value today is \$422.40, well that'' s. certainly less than \$500 so you'' d instead have the\$ 500 now.You with

me? Okay. All right, any questions on 1 via 3? Okay. All right, let'' s experience number 4. Okay. Today you deposited \$1,000 in the cost savings.
account paying 5% interest, just how much should you have in ten years? Okay. Well, here we have today worth but we.
need to understand F. We require to understand the future value; is that.
remedy? The future worth is 1,628.93, sensible,.
alright? Can you see just how this kind of point can be.
beneficial for, like, retirement planning or situations like that? Okay. Number 5, the typical rate of a new house.
is 188,500, if brand-new homes are raising at a rate of 6% annually just how much will certainly a brand-new.
house expense in 8 years? Did you obtain \$300,446.29 cents? I don'' t mind if you ' re
off by, you know, a. little there.Sometimes people will certainly be off by \$80,000 as well as.
Okay, let ' s go to number 6.\$ 150 in today'' s bucks, alright? If textbooks are increasing at a price of 5%.
a year, just how much would a textbook cost in 25 years? Okay. Well that'' s just how much you need to inform your. children to conserve up for each one of their textbooks if that'' s the rate of boost, isn ' t it? Do you get\$ 507.96? Okay, great. All right, number 7, no one ever before gets number. 7 right. You will certainly get\$ 10,000 in 6 years. What ' s the here and now worth
that you need to. down payment today if the yearly rate of interest is 10% and passion is compounded semiannually,. all right.

Come off that if you would.Anybody obtain a solution below? Jeremiah, what ' d you get? >>> > I got\$ 2,822.50. It appeared type of reduced but.
>>> >'It ' s a good'try and I ' m thankful you utilized the sensible on this test, however'that ' s not correct. > >\$ 3,186? >>> > Did any person else obtain \$3,186? >>> > Okay, that ' s wrong as well, yet thanks for.
> > That ' s wrong as well. That ' s wrong as well, all right? Okay, here ' s the deal with this deal.
So if the annual rate is 10 %, and also interest. is worsened semiannually every 6 months, if the annual price is >>10%, what ' s the semiannual.

rates of interest? > > Five? > > Five percent.So the I that you should use is 5 %, okay? And also you are right, Jeremiah. And also if we ' re claiming 5% for each 6 months,. well just how many 6month periods exist in 6 years? >>> Twelve. > > Twelve, so the N you need to utilize is 12. The I you should make use of is 5%, alright? That'' s why when I specify that'table, that ' s. why when I specify the table that looked like this, that I didn ' t say N amounts to
the number. of years. I stated N amounts to the variety of durations, fine? The number of periods since in this circumstance.
is a 6month duration. You with me? Or perhaps I stated that incorrect. In this instance, N does not equal the number.
Any kind of questions on that? Okay. The table we used for this, people, the table.
that we used for this is this set right here, alright? And also it is the table B. 1 existing value of 1. And also I simply wrote P of F in there and it'' s. on page B10 in your book, at the actual end, alright? I observed some various other tables back there, don ' t. stress over those till and also unless I speak with you concerning them, fine? All right, cool down? So, no one has actually asked me the concern everybody.
always asks concerning those tables.What ' s the inquiry? >'> Are they exact? >>> We have, they are precise. > > How do you think of those numbers>, like,. just how do you create, thus
, like, is this the exact same for everything, like, for future. worth cash, everything
at 6% over 2 year, or 2 periods. It ' s going to be by that number.'> > Well, what they do is, if you consider this. formula up here on top right, all they did was plug in the interest rate and also the. I and also the N for each of those columns and also figured out that number, fine? So what I want you to do as a research project,.
You place'' t asked me the inquiry everybody. Okay? One class years earlier, however, I told them,.
I stated, no, I'' m going to have you remember the table and I had them going the entire hr. I told them, I claimed, “It ' s not
that big of. an offer, men. Simply find out, like, discover two
columns a day. and also the next day discover the next two” columns, as well as the next–” as well as they resembled, all. upset.So, one kid who didn ' t talk the entire term,.
Below'' s what I want to do. You'' re a great rememberer, okay? Now, for each team,
for each group, I ' m going.
Okay. Okay, that ' s your problem. Allow ' s simply roll that music genuine fast if we.
can. It won'' t be too long, yet let'' s proceed and also. roll the music
.( Music)'. Okay, we ' re back. That wasn ' t as well hard, was it? I ' m not mosting likely to address each
one, however the way. that you would fix this would certainly be to say P= F (P/F, i, n). We need to know the here and now worth, you place. in \$1,000. P/F, what ' s the rates of interest? And after that whatever paddle you were or team you. remained in, all right? So what I am asking
the initial team

let ' s. take an appearance at it first.I ' m claiming let me zoom in on there.' As well as if I begin creating and also it ' s not on there,. tell me. How a lot do I require to deposit today if I want. to withdraw\$ 1,000 in one year? >>Okay. >>What solution did you get, >>team 1? >>> > 952.40. > > Claim that again? 942? > > 952.40. >>> > 952.40? > > Yes. > > Right there. Okay. All. Okay, cool? All right, 2nd group, I ' m asking you exactly how. much do I need to down payment today if I wish to withdraw \$1,000 two years from currently? So that would certainly be right here, deal with? All. Your existing worth equates to now, to start with,. prior to you provide me the response, would we anticipate this number to be higher or reduced than our.
previous response? >>> > Reduced. > > Lower? That ' s proper because it has more time to.
grow, remedy? More time to develop interest.Okay.

All right, so what did you get, team 2? >>> > 907? > > 907? >>Precisely, precisely? > > Yeah. > > Okay. \$907.00. Excellent, fine? All right. Group 3, what I'' m basically asking you is.
> > Yeah. > > Okay.Awesome, fine? All right,'team 4, what I ' m asking you is.
That was fun, wasn'' t it? Okay, now I want to ask you an additional concern,. That ' s the concern.
very essential. I equals 5%, all right? If I want to recognize just how much I require to down payment.
today, if I wish to take out \$1,000 at the end of each of the next four years, isn'' t. that going to be the total of these four solutions combined? I wear'' t see the light bulb taking place, is it.
taking place? >>> > You obtain a \$1,000 yearly on that one. >>> > Yeah. Think of it by doing this. I require to have that I would pay that much.
for something that would pay me \$1,000 in one year, passion price: 5%.

I would pay this much for something that would.
instead give me \$1,000 in two years at that rate of interest. I would certainly pay this much today for something.
that would certainly give me \$1,000 in 3 years at 5%. And also I would certainly pay this much for something that.
would offer me \$1,000 in four years at rates of interest of 5%. So what would certainly I provide for something that would certainly.
do all of that? Pay \$1,000 at each of the end of the next.
four years.Wouldn ' t

that be the total of those 4 numbers? Okay. Somebody get out a calculator as well as let'' s. add up these 4 numbers in purple. Okay. Add those numbers up. If you'' re in the house, include those up. Okay. Currently what was the sum of those four numbers? >>> > 3,545.90 >>. > > 3,545 is that it? Is that'what you stated? Okay, that ' s what I obtained also. The sum of these four numbers is 3,545.90.
Does that make sense why that ' s the solution? Now there ' s a simpler way to do this.
There ' s a less complicated means to do this and also you can. see just how you can resolve this problem by just doing 4 P of F issues, deal with? That gets a little old.
If I wanted to ask what if the concern, what. was just how much do I require to deposit today
if I intend to take out\$ 1,000 at the end of each. of the following twenty years? Well, you don ' t wish to do twenty P of F troubles,.
do you? Okay. So let ' s discuss a far better means
to do this,. alright? A far better method to do this, and also allow me specify.
some new terms for you, okay? A much better means to do this, and also allow me define.
some brand-new terms for you,

alright? Is we are going to speak about existing worth. of an annuity.Present value of an annuity, alright? We ' re going to use the letter A to signify. annuity, fine? An equals annuity. And also what is an annuity? Well, firstly', it might have a different. If you ' ve taken an investment training course or some various other course, definition. Yet annuity in this subject implies a reoccuring.
money flow of the very same quantity. A persisting cash flow of the same amount. So in this one right here, what we were doing,.
what was the annuity? What quantity was it? Yes. An equaled \$1,000 in this previous example,.
Now, okay. P still equals the existing worth. I still equates to the passion rate.
5%. And currently it'' s kind of let ' s fine-tune in a little.
we'' re discussing existing value of an annuity. N equates to the number of occurrences of the.
annuity, fine? For the example that we did before, this.
question right below, what does N amount to? N equates to 4, right? Because the annuity occurs 4 times, one,.
two, three, 4, okay? So what we'' re mosting likely to do is'we ' re mosting likely to. set this trouble up such as this, P= A( P/A, i, n), alright? P= A( P/A, i, n).

Okay, now allow'' s resolve, allow
' s fix the. same issue right below utilizing my brand-new means, okay? Okay, present value is what we'' re trying to.
generate, right? You properly stated, what was our annuity in.
this quantity? \$1,000. Currently we'' re going to most likely to a different table. that I ' ll reveal you in a second. We are mosting likely to go to a P of A, a present. worth of an annuity table, and also we ' re going to look under the column of I and also the row. of N. Now you claimed appropriately that the rate of interest equates to 5%; is that correct? As well as what did you claim properly was our N? 4. Our present value in this instance, \$1,000,.
we'' re mosting likely to go to the P of A table, 5%, 4, okay? All right, well where is that? Well, allow ' s look once again at the P of F table. Keep In Mind P of F table? Table B. 1 on page B10, existing worth of 1? Okay.If you have your book and you relocate over.
to the right, I believe, you'' ll see table B. 3, all right? As well as this claims present worth of an annuity.
Just go ahead and also write in your book, P/A. Okay. Those are the only 2 tables we'' re going.
value of cash, all right? It'' s an intro to time value of cash. However that'' s our P of A table.So going back to this problem, our present.
worth equals our annuity of 1,000. P of A, most likely to the P of A table, search the.
column of 5% in the row of 4. What is the worth that we'' re mosting likely to multiply.
by 1,000? What'' d you >>get? Someone? >
>>> 3.546. > > 3.5460; is that appropriate? As well as it ' s right, right there. 5%, 4, all right? On the P of A table, table B. 3. Okay? Well I can do this one on my head. 1,000 times 3.5460 equates to\$ 3,546. Now, is that what we obtained when we did this. formerly? It ' s close enough, okay? It ' s close enough. You with me? Now in this manner was a lot less complicated, wasn'' t it? Okay. Was a whole lot easier. Okay', concerns on that particular? We ' re mosting likely to do one below in a 2nd. Okay, what I desire you to do currently
is allow ' s look. back at our initial issue. Just how much do I require to deposit today if I want. to take out 1,000 at the end of each of the next four years, rate of interest is 5%, we ' ll.

preserve that rate of interest rate.But now I desire you to do the entire point other than.
I want you to not say 4 years, but instead two decades, okay? The following 20 years. If I desire, how a lot do I require to down payment today.
Passion rate equates to 5%. Play that music and also we'' ll come back here in.
Okay. Allow'' s come back to it. Exactly how much do I require to deposit today if I desire.
Currently we'' re going to go to our P of A table,. I ' ve remembered these tables however I ' ll go in advance. I'' m joking.
times 1,000? And afterwards that equals what? 12,000. >>> > Can you run it up? >>> > Thank you. \$12,462.20, is that what you obtained? Is that a practical answer? >>> > Yeah >>. > > I assume it is. Okay. Everybody get that? Did you obtain that, Henry? Lindsey? Yeah? Okay, great. Allow ' s do one more one, fine?'Allow ' s do an additional one. Let'' s switch to the allow ' s change over.
to the computer actual fast as well as allow'' s do this one.If I have \$3,000 today, just how much can I withdraw.
at the end of each of the next ten years if the rate of interest is 3%? Let'' s go in advance and also play the songs for around.
30 seconds and also allow'' s solve for that. (Songs) fine. Allow'' s go over the answer.
We would like to know our annuity, just how much we can. withdraw at the end of the each of the next 10 years. Okay, so we ' re going to most likely to our P of A table. Our rate of interest is 3% and our N is what? 10? Is that what you obtained? 3,000 amounts to A times, from my memory of that. table, I got 8.58302, is that what you obtained? 8.5302. So, currently I take 3,000, not increased by however. divided by, 8.5302. And what ' d you all get?\$ 351.69. Did you get that? Everyone get that? Okay, cool.Questions on that? Okay.

Allow ' s come off that for a 2nd. A number of things. I understand in your publication you'' ve most likely obtained 4.
tables, you'' ve obtained B. 1, B. 2, B. 3 and also B. 4. We are just mosting likely to make use of tables B. 1 and B. 3.
in this course, fine? Table B. 1 is the P of F table, existing value.
of 1. Table B. 3 is the P of A table, existing value.
an annuity of 1. If and also when you take a corporate money course.
you will dive much deeper into this subject and you'' ll rejoice we a minimum of introduced it,.
fine? The other point is sometimes individuals state, I.
can'' t identify which of these tables to utilize, is it a P of A problem or is it a P of.
A problem? Okay, well, below'' s what I would claim. If nothing else, just make your timeline,.
If it'' s like, this is year one, this is year. If they'' re talking concerning an amount right below.
as well as they'' re speaking about a quantity, like, method in the future, simply one quantity way in. the future, that'' s a P of F issue, all right? If instead they'' re chatting concerning some.
amount right below and afterwards some quantity that comes at completion of each of, whenever you.
see those keyword phrases like, “” at the end of each of””, then that is a P of A problem.Does that make

sense, people? Cool? Okay what I want to do currently is I wish to start.
working we won'' t make it through the whole thing but again, let'' s a minimum of possibly obtain via.
the first pair so we can examine our solutions. Allow me put this down so this entire handout,.
front as well as back, there'' s a total of 6 inquiries, will be your homework. Let'' s proceed as well as begin working with this. Note that this first one in fact has two.
different answers, so you need to do two different issues. One for each and every of those rates of interest.So while they'' re having fun that songs, let'' s. go on as well as service Handout # 2 for also more time value of cash troubles, alright? (Songs).
Okay. You'' re most likely not done but let'' s proceed. and review the first few answers to see if you got those best, all right? The first one, the first one says if you.
invest \$10,000 today just how a lot would certainly you want to take out at the end of each of.
the following 5 years if the rates of interest'' s at 5%? What if, instead, the rate of interest is 8%? So you in fact have two different issues,.
2 different answers, right? And I believe this would make good sense that your.
amount would certainly be greater with the higher rate of interest, deal with? You'' d have the ability to take out more if it'' s making.
higher passion, correct? Okay, so did you individuals obtain those two responses? Okay.Now keep in mind to ask yourself the reasonableness. examination. Keep in mind just how I spoke about confusion, occasionally. individuals wear ' t understand whether to make use of'the P of F or the P of A table? If they use the incorrect table, a great deal of times.
their solution that they obtain will not be affordable as well as so that could be an indication too, okay? And after that for the second one: A particular financial investment.
will certainly pay you \$15,000 at the end of each of the next two decades. If rates of interest'' s at 6 %, just how much would certainly you.
be willing to spend for this sort of investment? Did you men obtain the 17,204.85? Cool? All right. Okay, you can come off that. All. So what I want you to do for homework is to.
I think there'' s a total of 6 questions on. Following course duration we'' re going to capture up.
on something genuine fast from Chapter 15, those last couple of slides that we never ever discussed in.
Phase 15 in relation to international foreign purchases, all right? I think international foreign is a little.
bit repetitive, alright? And we'' re additionally going to begin Chapter 14:.
Bonds, fine? So you folks in the house, make certain you have Phase.
14 published out.We ' ll do both of those things following time. So all you require to do for research is this.
time value of cash Handout # 2. And remember, you people at residence online as.
531 or whatever? A bunch of gogetters below, huh? > > Link job on you folks at house.
do this as well.It ' s just 4 pages you read and also you simply.
do the Attach task over it. Review web page 529 to 531 or whatever, all right? Go ahead and do that Attach assignment.
tonite too because you don'' t have much research, this won'' t take as well long. Any various other questions? See you people later on.