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

The amount of interest paid is normally calculated on which of the following?

The present value of an annuity

The sum of principal and interest

The total amount of all future payments

The principal amount

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Verified step by step guidance

Understand the concept of interest: Interest is the cost of borrowing money, typically calculated as a percentage of the principal amount over a specific period.

Identify the principal amount: The principal is the original sum of money borrowed or invested, excluding any interest or additional charges.

Recognize that interest is calculated based on the principal amount: The formula for simple interest is \( I = P \times r \times t \), where \( I \) is the interest, \( P \) is the principal, \( r \) is the interest rate, and \( t \) is the time period.

Clarify why other options are incorrect: Interest is not calculated on the present value of an annuity, the sum of principal and interest, or the total amount of all future payments. These are different financial concepts and do not directly determine the interest calculation.

Conclude that the correct basis for calculating interest is the principal amount, as it is the foundation for determining the cost of borrowing or earning interest.