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

When something earns compound interest, it earns interest on:

Only the initial principal

Only the interest earned in the first period

Only the additional deposits made after the initial investment

Both the initial principal and the accumulated interest from previous periods

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Verified step by step guidance

Understand the concept of compound interest: Compound interest is the interest calculated on the initial principal and also on the accumulated interest from previous periods.

Break down the formula for compound interest: The formula is typically expressed as \( A = P(1 + r)^n \), where \( A \) is the future value, \( P \) is the principal amount, \( r \) is the interest rate per period, and \( n \) is the number of periods.

Recognize the key difference between simple and compound interest: Simple interest is calculated only on the initial principal, while compound interest includes interest on both the principal and the accumulated interest.

Apply the concept to the problem: Since compound interest earns interest on both the initial principal and the accumulated interest from previous periods, this is the correct answer.

Relate the concept to real-world scenarios: Compound interest is commonly used in savings accounts, investments, and loans, where the interest grows exponentially over time due to the compounding effect.