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

Which of the following components are required to determine the present value (PV) of a future sum using the time value of money equation?

Future value, payment amount, and depreciation rate

Future value, interest rate, and number of periods

Interest rate, payment amount, and salvage value

Present value, interest rate, and payment amount

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Verified step by step guidance

Understand the concept of present value (PV): Present value is the current worth of a future sum of money or stream of cash flows, given a specified rate of return (interest rate). It is calculated using the time value of money equation.

Identify the key components required for the calculation: To determine the present value, you need the future value (FV), the interest rate (r), and the number of periods (n). These components are essential in the formula for PV.

Recall the formula for present value: The formula is PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate per period, and n is the number of periods.

Analyze the options provided: Compare the components listed in each option to the required components for the PV calculation. The correct components are future value, interest rate, and number of periods.

Eliminate incorrect options: Exclude options that include irrelevant components such as payment amount, depreciation rate, or salvage value, as these are not part of the PV calculation.