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

What is the formula to calculate the monthly payment (PMT) on a 60-month loan with principal $P$, annual interest rate $r$, and monthly payments?

PMT = \frac{P}{60}

PMT = P \times (1 + r)^{60}

PMT = P \times r \times 60

PMT = \frac{P \times r}{1 - (1 + r)^{-60}}

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Verified step by step guidance

Understand the problem: The goal is to calculate the monthly payment (PMT) for a loan using the correct formula. The formula provided is PMT = \frac{P \times r}{1 - (1 + r)^{-60}}, where P is the loan principal, r is the monthly interest rate, and the loan term is 60 months.

Step 1: Convert the annual interest rate to a monthly interest rate. If the annual interest rate is given as a percentage, divide it by 12 and convert it to a decimal. For example, if the annual interest rate is 6%, the monthly interest rate r = \frac{6}{100 \times 12}.

Step 2: Calculate the denominator of the formula. The denominator is 1 - (1 + r)^{-60}. First, add 1 to the monthly interest rate r, then raise the result to the power of -60 (negative exponent). Finally, subtract this value from 1.

Step 3: Calculate the numerator of the formula. The numerator is P \times r, where P is the loan principal and r is the monthly interest rate. Multiply these two values together.

Step 4: Divide the numerator by the denominator to find the monthly payment (PMT). Use the formula PMT = \frac{P \times r}{1 - (1 + r)^{-60}} to complete the calculation.