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

Why do you earn more money using compound interest than you would using simple interest?

Because simple interest is paid out more frequently than compound interest.

Because compound interest is calculated only on the initial principal.

Because simple interest rates are always lower than compound interest rates.

Because compound interest earns interest on both the initial principal and the accumulated interest from previous periods.

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Verified step by step guidance

Understand the difference between simple interest and compound interest. Simple interest is calculated only on the initial principal, while compound interest is calculated on the initial principal plus any accumulated interest from previous periods.

For simple interest, use the formula: I = P × r × t, where I is the interest, P is the principal, r is the annual interest rate, and t is the time in years.

For compound interest, use the formula: A = P × (1 + r/n)^(n×t), where A is the total amount, P is the principal, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the time in years.

Compare the two methods: In simple interest, the interest earned remains constant over time because it is based only on the initial principal. In compound interest, the interest grows exponentially because it is calculated on the principal plus accumulated interest.

Conclude that compound interest earns more money over time because it allows interest to be earned on both the initial principal and the interest that has already been added to the account.