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 interest is earned not only on the principal but also on previously earned interest, it is referred to as:

Compound interest

Effective interest

Simple interest

Nominal interest

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Verified step by step guidance

Understand the concept of interest: Interest is the cost of borrowing money or the return on investment for lending money. It can be calculated in different ways depending on the method used.

Learn the definition of compound interest: Compound interest is the interest earned not only on the initial principal amount but also on the accumulated interest from previous periods. This contrasts with simple interest, which is calculated only on the principal.

Compare the options provided: Analyze the terms 'Compound interest,' 'Effective interest,' 'Simple interest,' and 'Nominal interest' to determine which one matches the definition of earning interest on both principal and previously earned interest.

Focus on the term 'Compound interest': Recognize that compound interest specifically refers to the process of earning interest on both the principal and the accumulated interest, making it the correct answer in this context.

Conclude the reasoning: Based on the explanation, select 'Compound interest' as the correct answer because it aligns with the definition provided in the problem.