The module is from the authors free internet book, Financial Accounting. The site contains 2 pages of text in pdf file format, a practice set, and the practice set solution. Concepts covered include future value and present value of lump sums and ordinary annuities using compound interest. A time line is used to explain how the present value and future value of money are related. In addition, the value of winning a million dollar lottery ticket with twenty $50,000 payments is illustrated. Students then calculate the total dollar outlay when buying a car over three years vs. five years. Finally, how to calculate the internal rate of return is also demonstrated. Problems are solved using present value and future value tables.
As a result of studying these materials and given the appropriate present and future value interest factor tables, students should be able to: 1) determine the future value of a lump sum, 2) determine the present value of a lump sum, 3) determine the future value of an annuity, 4) determine the present value of an annuity, and 5) determine the internal rate of return on an investment.
Target Student Population:
High School, College General Education, introductory accounting and finance courses
Prerequisite Knowledge or Skills:
Basic math skills including algebra. A basic understanding of time value of money concepts and terms would be helpful.
Type of Material:
Tutorial with practice set
In class, homework, individual or team.
Browser and PDF reader
Evaluation and Observation
This module provides a simple understandable explanation of the concept of present and future value. A simple practice set is given along with the check figures for some hands-on experience. The module is clear and reasonably concise in that a rather complex topic has been condensed to two pages of reading material. Content is current, relevant, self-contained, and well summarized. The side by side comparison of present and future value using a time line is a nice touch to demonstrate the relationship between these concepts.
The formulas and math used to determine the table factors have not been presented. As a result students could only solve problems for the few interest rates and periods given. In addition, interest rates used in the examples are unrealistic in terms of the present day financial environment. Some individuals might question relevancy as the trend today is to use financial calculators to perform these calculations.
Potential Effectiveness as a Teaching Tool
The lesson uses an algebraic approach to solving time value of money problems. The lottery and machine investment examples tie mathematical concepts to the real-world. The relationship between present and future value is demonstrated nicely as well. With appropriate background knowledge, users have the potential to learn much in a short time.
No specific learning objectives have been identified to provide a purpose to the lesson.
Prerequisite knowledge has not been specified.
Instructor provided context is likely required to help make the lesson more meaningful to some students. For example, it may not be readily apparent that F (Pin) means F (P x I x N) where P = Principle, I = interest rate and N = number of periods.
Ease of Use for Both Students and Faculty
The tutorial is easy to use. For the vast amount of information contained within two pages, layout and design is effective. Having content limited to a two page hand-out is rather nice. The embedded advertisements for other learning materials available do not appear when the worksheet and practice set are printed. Having check figures encourages students to discover the process required to solve the problems.
Interactivity is limited to solving practice problems using pencil and paper. Some users may feel overwhelmed by the vast amount of content contained within just two pages. The text based format used for this module may not be well suited for the current generation of students who prefer graphical presentations and online interactivity rather to reading text.