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

If you want to have \$1,000,000 saved at retirement in 30 years and you can earn an annual interest rate of 6\% compounded monthly, how much must you deposit at the end of each month? (Assume payments are made at the end of each period.)

Approximately \$2,778 per month

Approximately \$1,074 per month

Approximately \$1,667 per month

Approximately \$555 per month

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Verified step by step guidance

Step 1: Identify the type of problem. This is a future value of an ordinary annuity problem, where you want to determine the monthly payment required to reach a specific future value.

Step 2: Use the formula for the future value of an ordinary annuity: FV = P * [(1 + r/n)^(n*t) - 1] / (r/n), where FV is the future value, P is the monthly payment, r is the annual interest rate, n is the number of compounding periods per year, and t is the number of years.

Step 3: Substitute the known values into the formula: FV = $1,000,000, r = 0.06 (6%), n = 12 (monthly compounding), and t = 30 years. Rearrange the formula to solve for P (the monthly payment).

Step 4: Calculate the effective interest rate per period (r/n) and the total number of periods (n*t). For this problem, r/n = 0.06/12 = 0.005, and n*t = 12 * 30 = 360.

Step 5: Solve for P by isolating it in the formula: P = FV / [(1 + r/n)^(n*t) - 1] / (r/n). Plug in the values and simplify step by step to find the monthly payment required.