Table of contents

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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 a \$750 payment to be received in three years if the discount rate is 5\% per year, compounded annually?

\$712.50

\$675.00

\$750.00

\$647.72

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Verified step by step guidance

Identify the formula for calculating the present value (PV) of a future payment: PV = $ \frac{FV}{(1 + r)^n} $, where FV is the future value, r is the discount rate, and n is the number of periods.

Substitute the given values into the formula: FV = 750, r = 0.05 (5% expressed as a decimal), and n = 3 (three years).

Simplify the denominator by calculating $ (1 + r)^n $: $ (1 + 0.05)^3 $.

Divide the future value (750) by the result of the denominator calculation to find the present value: $ PV = \frac{750}{(1 + 0.05)^3} $.

The result of this calculation will give you the present value of the payment, which is the amount you would need to invest today at a 5% annual discount rate to have $750 in three years.