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 invest $10 today in an account that earns an annual interest rate of 5\% compounded annually, how much will you have at the end of 3 years?

$11.58

$11.50

$12.00

$15.00

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Verified step by step guidance

Understand the concept of compound interest: Compound interest is calculated on the initial principal and also on the accumulated interest from previous periods. The formula for compound interest is: $ A = P \times (1 + r)^n $, where $ A $ is the future value, $ P $ is the principal amount, $ r $ is the annual interest rate, and $ n $ is the number of years.

Identify the given values from the problem: $ P = 10 $ (initial investment), $ r = 0.05 $ (annual interest rate expressed as a decimal), and $ n = 3 $ (number of years).

Substitute the given values into the compound interest formula: $ A = 10 \times (1 + 0.05)^3 $.

Simplify the expression inside the parentheses: $ 1 + 0.05 = 1.05 $, so the formula becomes $ A = 10 \times (1.05)^3 $.

Calculate $ (1.05)^3 $ and then multiply the result by $ 10 $ to find the future value $ A $. This will give you the amount in the account at the end of 3 years.