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

Given an effective annual rate (EAR) of 14% and semiannual compounding, what is the nominal annual interest rate (APR) compounded semiannually?

12.00%

14.00%

13.53%

7.00%

Previous problemNext problem

Verified step by step guidance

Understand the relationship between the Effective Annual Rate (EAR) and the Nominal Annual Interest Rate (APR). The EAR accounts for compounding, while the APR is the nominal rate without compounding adjustments.

Use the formula to convert EAR to APR for semiannual compounding: \( EAR = \left(1 + \frac{APR}{n}\right)^n - 1 \), where \( n \) is the number of compounding periods per year. For semiannual compounding, \( n = 2 \).

Rearrange the formula to solve for APR: \( APR = n \times \left(\sqrt[n]{EAR + 1} - 1\right) \). Substitute \( EAR = 0.14 \) and \( n = 2 \) into the formula.

Calculate the intermediate step \( \sqrt[n]{EAR + 1} \), which is \( \sqrt[2]{0.14 + 1} \). This represents the semiannual compounding factor.

Multiply the result by \( n \) (which is 2) to find the nominal annual interest rate (APR) compounded semiannually.