Financial Accounting Connect Access Card
5th Edition
ISBN: 9781260159622
Author: J. David Spiceland
Publisher: Mcgraw-Hill
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Question
Chapter C, Problem 1SSQ
To determine
State the option that explains the difference between the simple interest and compound interest.
Expert Solution & Answer
Answer to Problem 1SSQ
b. Simple interest includes interest earned on the initial investment only.
Explanation of Solution
Time value of money:
Time value of money refers to the concept that the value of money available at present worth more in the future due to its potential earning capacity.
Justification for the incorrect answer
Option a:
Compound interest is the interest earned on the principal amount, plus the interest accumulated for the compounding years. Therefore, Option a is an incorrect answer.
Option c:
Simple interest refers to the interest that is earned on the initial investment only and these are calculated quarterly, semiannually and annually. It is not necessary for a simple interest to be calculated for a shorter time interval. Therefore, Option c is an incorrect answer.
Option d:
Simple interest refers to the interest that is earned on the initial investment only and these are calculated quarterly, semiannually and annually. It is not necessary for a simple interest to be calculated for a longer time interval. Therefore, Option d is an incorrect answer.
Justification for the correct answer
Option b:
Simple interest refers to the interest that is earned on the initial investment only.
Therefore, from the above explanation it is observed that Option b. (Simple interest includes interest earned on the initial investment only) is the correct answer and other options a, c and d are incorrect answer.
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Chapter C Solutions
Financial Accounting Connect Access Card
Ch. C - Prob. 1SSQCh. C - Prob. 2SSQCh. C - Prob. 3SSQCh. C - Prob. 4SSQCh. C - Prob. 1RQCh. C - Prob. 2RQCh. C - Prob. 3RQCh. C - Prob. 4RQCh. C - Prob. 5RQCh. C - Prob. 1BE
Ch. C - Prob. 2BECh. C - Prob. 3BECh. C - Prob. 4BECh. C - Prob. 5BECh. C - Prob. 6BECh. C - Prob. 7BECh. C - Prob. 8BECh. C - Prob. 9BECh. C - Prob. 10BECh. C - Prob. 11BECh. C - Prob. 12BECh. C - Prob. 13BECh. C - Prob. 1ECh. C - Prob. 2ECh. C - Prob. 3ECh. C - Prob. 4ECh. C - Prob. 5ECh. C - EC-6 GMG Studios plans to invest $60,000 at the...Ch. C - Prob. 7ECh. C - Prob. 8ECh. C - Prob. 1PACh. C - Prob. 2PACh. C - Prob. 3PACh. C - Prob. 1PBCh. C - Prob. 2PBCh. C - Prob. 3PB
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