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

Why does it typically take 30 years to pay off a $150,000 mortgage with monthly payments?

Because lenders require all loans to be paid off in exactly 30 years regardless of amount.

Because the principal is paid off first, and interest is paid only at the end of the loan term.

Because the loan is amortized over a long period, resulting in lower monthly payments but more interest paid over time.

Because the interest rate is always zero, so payments are spread out evenly.

Previous problemNext problem

Verified step by step guidance

Understand the concept of loan amortization: Loan amortization refers to the process of spreading out loan payments over a specified period, typically in equal installments. Each payment includes both principal and interest components.

Recognize the relationship between loan term and monthly payments: A longer loan term, such as 30 years, results in lower monthly payments because the principal is divided into more installments. However, this also means more interest is paid over the life of the loan.

Analyze the structure of monthly payments: Monthly payments are calculated using an amortization formula that accounts for the loan amount (principal), interest rate, and loan term. Payments are structured so that early payments primarily cover interest, while later payments increasingly cover the principal.

Understand why lenders offer 30-year terms: Lenders often provide 30-year mortgage terms to make homeownership more affordable by reducing monthly payment amounts, even though this increases the total interest paid over time.

Connect the explanation to the correct answer: The correct answer is that the loan is amortized over a long period, resulting in lower monthly payments but more interest paid over time. This reflects the trade-off between affordability and total cost.