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 an ordinary annuity where $400 is invested at the end of each year for 15 years at an annual interest rate of 6%?

$9,635.20

$8,400.00

$10,200.00

$9,457.60

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Verified step by step guidance

Step 1: Understand the problem. The future value of an ordinary annuity is calculated when equal payments are made at the end of each period, and interest is compounded annually. Here, the payment (PMT) is $400, the number of periods (n) is 15 years, and the annual interest rate (r) is 6%.

Step 2: Use the formula for the future value of an ordinary annuity: FV = PMT × ((1 + r)^n - 1) / r. This formula accounts for the compounding effect of interest over time.

Step 3: Substitute the given values into the formula. Replace PMT with 400, r with 0.06 (6% expressed as a decimal), and n with 15. The formula becomes: FV = 400 × ((1 + 0.06)^15 - 1) / 0.06.

Step 4: Calculate the term (1 + r)^n. This involves raising (1 + 0.06) to the power of 15. Then subtract 1 from the result to find the numerator of the formula.

Step 5: Divide the numerator by the interest rate (0.06) to complete the calculation. Multiply the result by the payment amount ($400) to find the future value of the annuity.