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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

All else held constant, the present value of an annuity will decrease if you:

decrease the discount rate

decrease the payment amount

increase the number of periods

increase the discount rate

Previous problemNext problem

Verified step by step guidance

Understand the concept of present value of an annuity: The present value of an annuity is the current worth of a series of future payments, discounted at a specific rate. It is calculated using the formula: \( PV = P \times \frac{1 - (1 + r)^{-n}}{r} \), where \( P \) is the payment amount, \( r \) is the discount rate, and \( n \) is the number of periods.

Analyze the impact of the discount rate: The discount rate \( r \) is inversely related to the present value. As \( r \) increases, the denominator in the formula becomes larger, reducing the overall present value.

Consider the effect of decreasing the payment amount \( P \): If \( P \) decreases, the present value will also decrease because \( P \) is directly proportional to \( PV \).

Evaluate the effect of increasing the number of periods \( n \): Increasing \( n \) adds more terms to the calculation, which can increase the present value depending on the discount rate. However, this is not the primary factor in this scenario.

Conclude that increasing the discount rate \( r \) will decrease the present value of the annuity, as it directly impacts the formula by reducing the value of the fraction \( \frac{1 - (1 + r)^{-n}}{r} \).