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 a cash flow of $1,000 to be received at the end of year 3 and a discount rate of 8\% per year, what is the present value of this year 3 cash flow?

$793.83

$857.34

$925.93

$1,000.00

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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 cash flow, discounted at a specific rate. The formula for PV is: PV = FV / (1 + r)^n, where FV is the future value, r is the discount rate, and n is the number of periods.

Step 2: Identify the given values from the problem. Here, the future value (FV) is $1,000, the discount rate (r) is 8% (or 0.08 in decimal form), and the number of periods (n) is 3 years.

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 + 0.08) = 1.08. Then raise 1.08 to the power of 3 (n = 3). Finally, divide the future value ($1,000) by the result of 1.08^3.

Step 5: Compare the calculated present value to the provided answer choices ($793.83, $857.34, $925.93, $1,000.00) to determine the correct answer.