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 interest rate used to compute the present value of a future cash flow is called the:

nominal rate

growth rate

discount rate

inflation rate

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Verified step by step guidance

Understand the concept of present value: Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return.

Learn the role of the discount rate: The discount rate is the interest rate used to determine the present value of future cash flows. It reflects the time value of money and the risk associated with the cash flows.

Differentiate between the given options: Nominal rate refers to the stated interest rate without adjustments for inflation. Growth rate refers to the rate at which an investment or economy grows. Inflation rate measures the rate at which prices increase over time. None of these directly relate to calculating present value.

Recognize the correct term: The discount rate is specifically used in financial accounting to compute the present value of future cash flows, making it the correct answer.

Apply this knowledge in practice: When solving problems involving present value, always use the discount rate to adjust future cash flows to their current value.