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

How does an increase in the interest rate affect the amount of money earned on a savings account over time, assuming all other factors remain constant?

It decreases the amount of money earned because less interest is paid.

It causes the money earned to fluctuate unpredictably.

It has no effect on the money earned; only the initial deposit matters.

It increases the amount of money earned due to higher interest accumulation.

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Verified step by step guidance

Understand the concept of interest rate: The interest rate is the percentage at which money in a savings account grows over time. Higher interest rates mean that the principal amount earns more interest, leading to greater accumulation of money.

Identify the type of interest: Determine whether the savings account uses simple interest or compound interest. Compound interest typically results in faster growth because interest is earned on both the principal and previously accumulated interest.

Analyze the relationship between interest rate and earnings: As the interest rate increases, the amount of interest earned on the principal also increases, assuming all other factors remain constant.

Consider the formula for interest calculation: For simple interest, the formula is \( I = P \times r \times t \), where \( I \) is the interest earned, \( P \) is the principal, \( r \) is the interest rate, and \( t \) is the time period. For compound interest, the formula is \( A = P \times (1 + r)^t \), where \( A \) is the total amount after interest, \( P \) is the principal, \( r \) is the interest rate, and \( t \) is the time period.

Conclude the effect of an increased interest rate: Higher interest rates lead to greater interest accumulation over time, increasing the total amount of money earned in the savings account.