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

You expect to receive \$5,000 in 25 years. How much is it worth today if the discount rate is 5.5\% compounded annually?

\$2,500.00

\$3,000.00

\$1,242.13

\$2,050.00

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Verified step by step guidance

Step 1: Understand the concept of Present Value (PV). Present Value is the current worth of a future sum of money given a specific discount rate and time period. The formula for PV is: PV = FV / (1 + r)^n, where FV is the future value, r is the annual discount rate, and n is the number of years.

Step 2: Identify the given values from the problem. Here, FV (Future Value) = $5,000, r (discount rate) = 5.5% or 0.055, and n (number of years) = 25.

Step 3: Substitute the given values into the Present Value formula. Using MathML, the formula becomes:

PV = \frac{FV}{{(1 + r)}^{n}}

Step 4: Perform the calculation step-by-step. First, calculate (1 + r), which is (1 + 0.055). Then raise this value to the power of n (25 years). Finally, divide FV ($5,000) by the result of the previous calculation.

Step 5: Interpret the result. The calculated Present Value represents the amount of money you would need to invest today at a 5.5% annual discount rate to have $5,000 in 25 years. Compare this value to the provided options to identify the correct answer.