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

A real rate of return is defined as a rate that has been adjusted for which one of the following?

Market risk

Inflation

Taxes

Transaction costs

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Verified step by step guidance

Understand the concept of 'real rate of return': The real rate of return is the return on an investment after adjusting for the effects of inflation. It reflects the true purchasing power of the returns earned.

Identify the key adjustment factor: Inflation is the primary factor that erodes the purchasing power of money over time. Therefore, the real rate of return accounts for this by removing the impact of inflation from the nominal rate of return.

Differentiate from other factors: Market risk, taxes, and transaction costs are not directly related to the calculation of the real rate of return. These factors may affect investment decisions but are not part of the inflation adjustment.

Use the formula for real rate of return: The formula is typically expressed as:

Real Rate of Return = (1 + Nominal Rate) / (1 + Inflation) - 1

. This formula adjusts the nominal rate of return for inflation.

Apply the concept: When analyzing investment returns, always consider the real rate of return to understand the actual growth in purchasing power, as opposed to just the nominal growth.