Revealing money’s time value

Martin Stuebs

Journal of Accounting Education, 2011, vol. 29, issue 1, 14-36

Abstract: Few accounting concepts are as challenging as valuation and the time value of money. Few are as powerful or useful. Measurement and valuation issues are central to the study of accounting, and developing students’ understanding of basic valuation concepts like the time value of money is critical. The purpose of this paper is to provide instructional resources to help build students’ valuation skills by revealing the (1) power, (2) concepts, and (3) application of the time value of money and basic valuation concepts. Three tools are presented. The first reveals the evolution and impact of financial markets like the bond market and their requisite need for mathematics and the time value of money. The exercise uses a video accompanied with questions that are intended to act as a “hook” to capture student interest in lending and the time value of money. The second tool reveals concepts of bond financing, valuation and the time value of money. It begins with familiar time-value-of-money concepts and logically progresses. Each step uses intuition from prior steps to methodically build concepts in a discovery-learning process. The steps ignore bond terminology until the intuition between cash flows, interest rates, and purchase prices has been established. The third tool has students apply time-value-of-money and valuation concepts to plan and account for personal retirement assets. The exercise demonstrates the applicable usefulness and practical value of the time value of money and basic valuation skills. It can spark use of these concepts to empower fiscal responsibility and self-sufficiency. In sum, the article provides a small arsenal of exercises for delivering time value of money and valuation material. The exercises can be used collectively or individually depending on instructor preference and course parameters.

Keywords: Introductory financial accounting; Intermediate financial accounting; Time value of money; Valuation; Teaching resources (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joaced:v:29:y:2011:i:1:p:14-36

DOI: 10.1016/j.jaccedu.2011.09.001

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