Chapter 9

When you borrow money, you don't get it for free. Here, we're going to calculate the interest on an interest bearing loan.

"Non-interest bearing" is kind of a misnomer. You may not have to pay interest, but yo don't get all the cash up front, so it ends up being an interest expense anyway!

A contingent liability is based on something else. You may or may not have to pay this sort of liability.

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?

Compound interest is the most powerful force in the universe. -Einstein

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.

We're gonna do another PV of a lump sum problem, and this time you need to watch out for the compounding frequency.

An ordinary annuity is just a series of regular payments over some period of time.

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.

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.