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

Given the following information, solve for the unknown annual interest rate ($r$):An investment of $5,000 grows to $7,500 in 5 years with interest compounded annually. What is the annual interest rate?A) 8.45% B) 10.00% C) 12.47% D) 15.00%

15.00%

10.00%

12.47%

8.45%

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Verified step by step guidance

Step 1: Identify the formula for compound interest. The formula is: $ A = P(1 + r)^t $, where $ A $ is the future value, $ P $ is the principal amount, $ r $ is the annual interest rate (in decimal form), and $ t $ is the time in years.

Step 2: Substitute the given values into the formula. Here, $ A = 7500 $, $ P = 5000 $, and $ t = 5 $. The equation becomes: $ 7500 = 5000(1 + r)^5 $.

Step 3: Divide both sides of the equation by $ P $ (5000) to isolate $ (1 + r)^5 $. This simplifies to: $ \frac{7500}{5000} = (1 + r)^5 $, or $ 1.5 = (1 + r)^5 $.

Step 4: Take the fifth root (or raise both sides to the power of $ \frac{1}{5} $) to solve for $ 1 + r $. This gives: $ (1.5)^{\frac{1}{5}} = 1 + r $.

Step 5: Subtract 1 from both sides to isolate $ r $. The equation becomes: $ r = (1.5)^{\frac{1}{5}} - 1 $. Convert $ r $ into a percentage by multiplying the result by 100.