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 is the present value of \$100 to be received in 8 years if the annual interest rate is 5\% compounded annually?

\$85.00

\$55.00

\$67.68

\$80.00

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Verified step by step guidance

Understand the concept of present value: Present value (PV) is the current worth of a future sum of money given a specific interest rate and time period. It is calculated using the formula: PV = FV / (1 + r)^n, where FV is the future value, r is the annual interest rate, and n is the number of years.

Identify the given values from the problem: Future Value (FV) = $100, annual interest rate (r) = 5% or 0.05, and the time period (n) = 8 years.

Substitute the given values into the present value formula: PV = 100 / (1 + 0.05)^8.

Simplify the denominator: Calculate (1 + 0.05)^8, which represents the compounding effect of the interest rate over 8 years.

Divide the future value ($100) by the calculated denominator to find the present value. This will give the current worth of $100 to be received in 8 years at a 5% annual interest rate.