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

The relationship between the present value (PV) and the investment time period, assuming a positive interest rate, is best described as:

Present value decreases as the investment time period increases.

Present value is not affected by the investment time period.

Present value remains constant regardless of the investment time period.

Present value increases as the investment time period increases.

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Verified step by step guidance

Understand the concept of Present Value (PV): Present Value is the current worth of a future sum of money or stream of cash flows, given a specified rate of return (interest rate). It is calculated using the formula: PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate, and n is the time period.

Analyze the formula: Notice that the denominator (1 + r)^n increases as the time period (n) increases, assuming a positive interest rate (r > 0). This means the present value (PV) will decrease as n increases.

Relate the formula to the problem: Since the denominator grows larger with increasing time periods, the fraction PV = FV / (1 + r)^n becomes smaller, leading to a decrease in PV.

Eliminate incorrect options: Based on the formula, 'Present value remains constant regardless of the investment time period' and 'Present value increases as the investment time period increases' are incorrect because PV is directly affected by the time period and decreases as n increases.

Confirm the correct answer: The correct relationship is 'Present value decreases as the investment time period increases,' which aligns with the mathematical behavior of the formula.