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 John takes out a 30-year mortgage of \$200,000 at an annual interest rate of 5\% compounded monthly, how much total interest will he pay over the life of the mortgage?

$80,000

$120,000

$186,512

$300,000

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Verified step by step guidance

Step 1: Understand the problem. John has taken out a 30-year mortgage of $200,000 with an annual interest rate of 5% compounded monthly. The goal is to calculate the total interest paid over the life of the mortgage.

Step 2: Calculate the monthly interest rate by dividing the annual interest rate by 12. Use the formula: $ r = \frac{5\%}{12} $, where $ r $ is the monthly interest rate.

Step 3: Determine the total number of payments over the life of the mortgage. Since the mortgage is for 30 years and payments are made monthly, the total number of payments is $ n = 30 \times 12 $.

Step 4: Use the formula for the monthly payment of a fixed-rate mortgage: $ M = P \cdot \frac{r(1 + r)^n}{(1 + r)^n - 1} $, where $ M $ is the monthly payment, $ P $ is the loan principal ($200,000), $ r $ is the monthly interest rate, and $ n $ is the total number of payments.

Step 5: Multiply the monthly payment $ M $ by the total number of payments $ n $ to find the total amount paid over the life of the mortgage. Subtract the original loan principal $ P $ from this total to calculate the total interest paid.