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 formulas represents a present value factor?

$\dfrac{FV}{PV}$

$PV \times (1 + r)^n$

$(1 + r)^n$

$\dfrac{1}{(1 + r)^n}$

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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 (r). The present value factor is used to discount future values to their present value.

Review the formula for present value: The formula for calculating present value is $PV = \dfrac{FV}{(1 + r)^n}$, where FV is the future value, r is the interest rate, and n is the number of periods. This formula shows how future values are discounted to present values.

Identify the present value factor: The present value factor is the portion of the formula that discounts the future value. It is represented as $\dfrac{1}{(1 + r)^n}$. This factor is multiplied by the future value to calculate the present value.

Compare the given formulas: Analyze each formula provided in the problem and determine which one matches the present value factor. The correct formula is $\dfrac{1}{(1 + r)^n}$, as it represents the discounting mechanism for future values.

Conclude the reasoning: The formula $\dfrac{1}{(1 + r)^n}$ is the correct representation of the present value factor because it discounts future values to their present worth based on the interest rate and number of periods.