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

A loan has an APR of 8.5\% and an EAR of 8.5\%. Given this, the loan must:

Compound interest quarterly.

Compound interest semiannually.

Charge interest only once per year.

Have monthly compounding.

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Verified step by step guidance

Understand the difference between APR (Annual Percentage Rate) and EAR (Effective Annual Rate). APR is the nominal interest rate, while EAR accounts for compounding within the year.

Recognize that when APR equals EAR, it implies there is no compounding within the year. This is because compounding would cause the EAR to be higher than the APR.

Analyze the compounding options provided in the problem: quarterly, semiannually, monthly, or annually. Compounding quarterly, semiannually, or monthly would result in an EAR greater than the APR.

Conclude that the only scenario where APR equals EAR is when interest is charged only once per year, meaning there is no intra-year compounding.

Verify the logic by recalling the formula for EAR: EAR = (1 + (APR/n))^n - 1, where 'n' is the number of compounding periods per year. If n = 1 (annual compounding), EAR = APR.