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 future value of $1 invested today at an annual interest rate of $r$ for $n$ periods, compounded once per period?

$1 \times (1 - r)^n$

$1 \times (1 + r \times n)$

$1 \div (1 + r)^n$

$1 \times (1 + r)^n$

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Verified step by step guidance

Step 1: Understand the concept of future value. Future value (FV) is the value of a current amount of money after it has grown due to interest over a specified number of periods. Compounding means that interest is calculated on both the principal and any accumulated interest.

Step 2: Identify the formula for future value with compounding. The formula is: FV = P × (1 + r)^n, where P is the principal amount (initial investment), r is the annual interest rate, and n is the number of compounding periods.

Step 3: Analyze the given options. The correct formula for future value is $1 \times (1 + r)^n$, as it accounts for compounding interest over n periods. The other options do not correctly represent the compounding process.

Step 4: Substitute the values into the formula. Replace P with $1 (the initial investment), r with the given annual interest rate, and n with the number of periods to calculate the future value.

Step 5: Perform the calculation using the formula $FV = 1 \times (1 + r)^n$. This will give the future value of the $1 investment after n periods at the annual interest rate r.