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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following best describes the average rate of growth for an investment over a period of time?

Simple Interest Rate

Compound Annual Growth Rate (CAGR)

Future Value (FV)

Present Value (PV)

Previous problemNext problem

Verified step by step guidance

Understand the concept of Compound Annual Growth Rate (CAGR): CAGR is a measure used to describe the average annual growth rate of an investment over a specified period of time, assuming the investment grows at a steady rate. It is widely used in financial analysis to compare the performance of investments.

Recognize why Simple Interest Rate is not the correct answer: Simple interest calculates interest based only on the principal amount, without compounding. It does not account for the reinvestment of earnings, which is crucial for understanding growth over time.

Understand the difference between Future Value (FV) and Present Value (PV): Future Value refers to the value of an investment at a specific point in the future, given a certain rate of return. Present Value refers to the current value of future cash flows, discounted at a specific rate. Neither of these terms directly describes the average rate of growth over time.

Learn the formula for CAGR: The formula for CAGR is \( \text{CAGR} = \left( \frac{FV}{PV} \right)^{\frac{1}{n}} - 1 \), where \( FV \) is the future value, \( PV \) is the present value, and \( n \) is the number of years. This formula calculates the average annual growth rate of an investment.

Apply the concept of CAGR to the problem: Since the question asks for the average rate of growth for an investment over a period of time, the correct answer is Compound Annual Growth Rate (CAGR), as it accounts for compounding and provides a standardized measure of growth.