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

A 1-year loan with a 5\% APR will have the most interest charged with which type of compounding?

Semiannual compounding

Continuous compounding

Quarterly compounding

Annual compounding

Previous problemNext problem

Verified step by step guidance

Understand the concept of compounding: Compounding refers to the frequency with which interest is calculated and added to the principal balance. The more frequent the compounding, the higher the total interest accrued over time.

Review the types of compounding mentioned: Semiannual compounding means interest is compounded twice a year, quarterly compounding means four times a year, annual compounding means once a year, and continuous compounding means interest is compounded infinitely often.

Recall the formula for compound interest: \( A = P \cdot e^{r \cdot t} \) for continuous compounding, and \( A = P \cdot (1 + \frac{r}{n})^{n \cdot t} \) for other types of compounding, where \( A \) is the future value, \( P \) is the principal, \( r \) is the annual interest rate, \( n \) is the number of compounding periods per year, and \( t \) is the time in years.

Compare the impact of compounding frequency: Continuous compounding results in the highest amount of interest because it assumes interest is being compounded at every possible moment, whereas semiannual, quarterly, and annual compounding occur less frequently and result in lower total interest.

Conclude that continuous compounding will result in the most interest charged for the 1-year loan with a 5% APR, as it compounds infinitely often compared to the other options.