1. What is the time value of money? Why should accountants have an understanding of compound interest, annuities, and present value concepts?

2. Identify three situations in which accounting measures are based on present values. Do these present value applications involve single sums or annuities, or both single sums and annuities? Explain.

3. What is the nature of interest? Distinguish between simple interest and compound interest.

4. Jose Oliva is considering two investment options for a $1,500 gift he received for graduation. Both investments have 8% annual interest rates. One offers quarterly compounding; the other compounds on a semiannual basis. Which investment should he choose? Why?