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

Approximately what annual interest rate, compounded annually, is needed to double an investment in 4 years?

15%

17.7%

12.5%

18%

Previous problemNext problem

Verified step by step guidance

Step 1: Understand the problem. The goal is to determine the annual interest rate, compounded annually, required to double an investment in 4 years. This involves using the formula for compound interest and solving for the interest rate.

Step 2: Recall the compound interest formula: \( A = P(1 + r)^t \), where \( A \) is the future value, \( P \) is the principal amount, \( r \) is the annual interest rate (as a decimal), and \( t \) is the time in years. In this case, \( A = 2P \) (since the investment doubles), \( t = 4 \), and \( P \) cancels out.

Step 3: Simplify the formula to solve for \( r \): \( 2 = (1 + r)^4 \). This equation represents the relationship between the doubling of the investment and the annual interest rate.

Step 4: Take the fourth root of both sides to isolate \( 1 + r \): \( 1 + r = \sqrt[4]{2} \). Then subtract 1 from both sides to solve for \( r \): \( r = \sqrt[4]{2} - 1 \).

Step 5: Convert \( r \) into a percentage by multiplying the decimal result by 100. This will give the annual interest rate required to double the investment in 4 years.