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 annual rate of return is earned on a $1 investment that grows to $1.21 in 2 years, compounded annually?

10%

21%

10\%

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Verified step by step guidance

Step 1: Understand the formula for compound interest. The formula to calculate the future value (FV) of an investment is: FV = PV × (1 + r)^n, where PV is the present value, r is the annual rate of return, and n is the number of compounding periods.

Step 2: Rearrange the formula to solve for the annual rate of return (r). The rearranged formula is: r = (FV / PV)^(1/n) - 1.

Step 3: Substitute the given values into the formula. Here, FV = $1.21, PV = $1, and n = 2 years. Plug these values into the formula: r = ($1.21 / $1)^(1/2) - 1.

Step 4: Simplify the fraction inside the parentheses. Divide FV by PV to get: r = (1.21)^(1/2) - 1.

Step 5: Interpret the result. The value of r represents the annual rate of return, expressed as a percentage. Ensure the calculation aligns with the compounding period (annually in this case).