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

Compound interest is usually better than simple interest because it pays:

interest only on the initial principal

interest on both the initial principal and the accumulated interest

a fixed amount of interest each period regardless of the balance

interest only at the end of the investment period

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Verified step by step guidance

Understand the concept of simple interest: Simple interest is calculated only on the initial principal amount for the entire duration of the investment. The formula for simple interest is:

I = P \times r \times t

, where

P

is the principal,

r

is the interest rate, and

t

is the time period.

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

A = P \times (1 + r) (^{t)}

, where

A

is the total amount,

P

is the principal,

r

is the interest rate, and

t

is the time period.

Compare the two methods: Simple interest pays a fixed amount of interest each period based only on the principal, while compound interest pays interest on both the principal and the accumulated interest, leading to exponential growth over time.

Identify the key advantage of compound interest: Compound interest allows the investment to grow faster because the interest earned in each period is added to the principal for the calculation of interest in the next period.

Conclude why compound interest is better: Compound interest is generally preferred over simple interest for long-term investments because it maximizes the growth potential by leveraging the accumulated interest.