📢 Too many exams? Don’t know which one suits you best? Book Your Free Expert 👉 call Now!

    Question

    Which of the following process best describes that the

    future value of an amount is much more than the sum of the principal and the annual rate of interest? 
    A Time value of money Correct Answer Incorrect Answer
    B Annuity Correct Answer Incorrect Answer
    C Discounting Correct Answer Incorrect Answer
    D Compounding Correct Answer Incorrect Answer
    E Perpetuity Correct Answer Incorrect Answer

    Solution

    Compounding is the process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time.   An interest is added on the initial investment (principal amount), this interest is the compound interest. Since the amount would be added to the initial investment and the new interest is calculated on this amount, the investment will continue to grow as this process would be consistent all throughout the investment period.

    Practice Next
    More Financial Management Questions
    ask-question