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

Which of the following formulas correctly uses the PV function in Excel to calculate the present value of an investment with an annual interest rate of 6% (entered in cell B2), 10 periods (entered in cell B3), and a payment of $1,000 per period (entered in cell B4), assuming payments are made at the end of each period?

=PV(B2, B3, -B4, 0, 1)

=PV(B2, B3, -B4)

=PV(B2, B3, B4, 0, 1)

=PV(B2, B3, B4)

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Verified step by step guidance

Step 1: Understand the PV function in Excel. The PV function calculates the present value of an investment or loan based on a constant interest rate, number of periods, and periodic payments. The syntax is: =PV(rate, nper, pmt, [fv], [type]).

Step 2: Break down the parameters: 'rate' is the interest rate per period (in this case, B2, which is 6%), 'nper' is the total number of periods (B3, which is 10), 'pmt' is the payment made each period (B4, which is $1,000). The optional 'fv' is the future value (assumed to be 0 if omitted), and 'type' specifies when payments are made (0 for end of period, 1 for beginning).

Step 3: Analyze the problem. Since payments are made at the end of each period, the 'type' parameter should be 0. If the 'type' parameter is omitted, Excel assumes payments are made at the end of the period by default.

Step 4: Consider the sign convention. In Excel, cash outflows (payments) are represented as negative values, so the 'pmt' parameter (B4) should be entered as -B4 to reflect this.

Step 5: Identify the correct formula. Since the future value (fv) and type are optional and payments are made at the end of the period, the correct formula is =PV(B2, B3, -B4), which omits the optional parameters.