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 the five-year discount factor is $d$, which of the following expressions correctly represents the present value (PV) of $1$ to be received in five years?

$PV = d$

$PV = 1 + d$

$PV = \frac{1}{d}$

$PV = d^5$

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Verified step by step guidance

Understand the concept of present value (PV): The present value is the current worth of a future sum of money or stream of cash flows, given a specified rate of return or discount rate. It is calculated using a discount factor, which accounts for the time value of money.

Identify the given variables: In this problem, the discount factor for five years is represented as $d$, and the future value to be received in five years is $1$. The goal is to determine which expression correctly represents the present value of $1$.

Recall the formula for present value: The general formula for present value is $PV = FV \times d$, where $FV$ is the future value and $d$ is the discount factor. In this case, $FV = 1$, so the formula simplifies to $PV = d$.

Analyze the other options: The other expressions provided ($PV = 1 + d$, $PV = \frac{1}{d}$, and $PV = d^5$) do not align with the standard formula for present value. For example, $PV = 1 + d$ adds the discount factor to the future value, which is incorrect. $PV = \frac{1}{d}$ represents the reciprocal of the discount factor, which is not relevant here. $PV = d^5$ raises the discount factor to the fifth power, which is also incorrect.

Conclude that the correct expression for the present value of $1$ to be received in five years is $PV = d$, as it directly applies the discount factor to the future value.