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Amounts of interest depend on lengths of time.Explain how?

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter1: Accounting And The Financial Statements

Section: Chapter Questions

Problem 10DQ

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Question

Amounts of interest depend on lengths of time.Explain how?

Expert Solution

Step 1

Interest is also dependent on the base of the length of time

A loan taken for a long period of time will be charged with more amount of interest and loans taken for a short duration will be charged with less amount of interest.

Note: If other things being constant.

Step 2

Individuals who borrowed the amount have to repay the amount of principal along with the interest accumulated during the length of time. So, longer the length of time, high will be the amount and shorter the length of time, smaller will be the amount.

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