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 best defines the future value in the context of the time value of money?

The amount to which a present sum of money will grow after earning interest for a specified period of time.

The original principal amount invested or loaned.

The total amount of interest earned on an investment over its entire life.

The current worth of a sum of money to be received in the future, discounted at a specific interest rate.

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Verified step by step guidance

Step 1: Understand the concept of future value in the context of the time value of money. Future value refers to the amount to which a present sum of money will grow after earning interest over a specified period of time.

Step 2: Analyze the options provided in the question. The correct definition of future value should align with the idea of growth of a present sum due to interest accumulation.

Step 3: Eliminate options that do not match the definition of future value. For example, 'The original principal amount invested or loaned' refers to the present value, not future value. Similarly, 'The total amount of interest earned on an investment over its entire life' focuses only on interest, not the total future value.

Step 4: Consider the option 'The current worth of a sum of money to be received in the future, discounted at a specific interest rate.' This describes present value, not future value, as it involves discounting future sums back to their current worth.

Step 5: Conclude that the correct definition of future value is 'The amount to which a present sum of money will grow after earning interest for a specified period of time,' as it accurately reflects the concept of future value in the time value of money.