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

How much will $1,000 be worth at the end of 2 years if the interest rate is 6% compounded daily?

$1,124.87

$1,123.60

$1,127.49

$1,120.00

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Verified step by step guidance

Step 1: Understand the formula for compound interest. The formula is: $ A = P \times (1 + \frac{r}{n})^{n \times t} $, where $ A $ is the future value, $ P $ is the principal amount, $ r $ is the annual interest rate, $ n $ is the number of compounding periods per year, and $ t $ is the time in years.

Step 2: Identify the values given in the problem. Here, $ P = 1000 $, $ r = 0.06 $ (6% annual interest rate), $ n = 365 $ (compounded daily), and $ t = 2 $ years.

Step 3: Substitute the values into the formula. Replace $ P $, $ r $, $ n $, and $ t $ in the formula $ A = P \times (1 + \frac{r}{n})^{n \times t} $. This becomes $ A = 1000 \times (1 + \frac{0.06}{365})^{365 \times 2} $.

Step 4: Simplify the expression inside the parentheses. Calculate $ \frac{0.06}{365} $ to find the daily interest rate, then add 1 to it.

Step 5: Raise the result from Step 4 to the power of $ 365 \times 2 $ (which is the total number of compounding periods over 2 years), and multiply the principal $ P $ by this value to find $ A $, the future value.