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

If a bank charges a customer 15\% annual interest on a loan of \$10,000 compounded annually, what is the total interest earned by the bank after 3 years?

\$4,000.00

\$5,196.25

\$5,225.00

\$4,500.00

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Verified step by step guidance

Step 1: Understand the formula for compound interest. The formula is: $ A = P(1 + r)^t $, where $ A $ is the total amount after interest, $ P $ is the principal amount, $ r $ is the annual interest rate (in decimal form), and $ t $ is the time in years.

Step 2: Identify the values given in the problem. The principal amount $ P $ is $ \$10,000 $, the annual interest rate $ r $ is $ 15\% $ or $ 0.15 $ in decimal form, and the time $ t $ is 3 years.

Step 3: Substitute the values into the compound interest formula: $ A = 10,000(1 + 0.15)^3 $. This will calculate the total amount after 3 years, including the interest.

Step 4: To find the total interest earned by the bank, subtract the principal amount $ P $ from the total amount $ A $: $ \, \text{Interest} = A - P $.

Step 5: Perform the calculations step by step to determine $ A $ and then subtract $ P $ to find the total interest earned. Ensure all calculations are accurate and follow the order of operations.