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

The future value of a lump-sum investment will increase if you:

Invest a smaller initial amount

Decrease the number of compounding periods

Increase the interest rate

Withdraw funds periodically

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Verified step by step guidance

Understand the concept of future value: Future value (FV) is the value of an investment at a specific point in the future, based on a given interest rate and compounding periods. It is calculated using the formula:

FV = P (1 + r) n

, where P is the principal amount, r is the interest rate per period, and n is the number of compounding periods.

Analyze the impact of increasing the interest rate: When the interest rate (r) increases, the term

(1 + r)

becomes larger, which results in a higher future value. This is because the investment grows faster due to the higher rate of return.

Consider the effect of a smaller initial amount: A smaller principal (P) would reduce the future value, as the base amount being compounded is smaller. This does not lead to an increase in future value.

Evaluate the impact of decreasing the number of compounding periods: Reducing the number of compounding periods (n) would result in less frequent application of interest, which decreases the future value. This does not lead to an increase in future value.

Understand the effect of withdrawing funds periodically: Periodic withdrawals reduce the principal amount available for compounding, which decreases the future value. This does not lead to an increase in future value.