Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

10. Time Value of Money

Time Value of Money Equations

Financial Accounting

10. Time Value of Money

Time Value of Money Equations

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Multiple Choice

Which equation best represents the future value of a single sum after $n$ periods, assuming no compounding interest (i.e., using simple interest)?

$FV = PV \times (1 - r \times n)$

$FV = PV \times (1 + r \times n)$

$FV = PV \times (1 + r)^n$

$FV = PV \div (1 + r \times n)$

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Verified step by step guidance

Understand the problem: The question is asking for the correct formula to calculate the future value (FV) of a single sum after $n$ periods, assuming simple interest. Simple interest means that interest is calculated only on the principal amount (PV) and does not compound over time.

Recall the formula for simple interest: The future value (FV) under simple interest is calculated as $FV = PV + (PV \times r \times n)$, where $r$ is the interest rate per period, and $n$ is the number of periods.

Simplify the formula: Factor out $PV$ from the equation $FV = PV + (PV \times r \times n)$ to get $FV = PV \times (1 + r \times n)$. This is the formula for the future value under simple interest.

Compare the given options: The correct formula for simple interest is $FV = PV \times (1 + r \times n)$. This matches one of the provided options.

Eliminate incorrect options: The other formulas provided either involve compounding interest (e.g., $FV = PV \times (1 + r)^n$) or are mathematically incorrect for simple interest (e.g., $FV = PV \times (1 - r \times n)$ or $FV = PV \div (1 + r \times n)$).