Business Essentials, 12/e

summary of learning objectives

Objective 17-1

1. Explain the concept of the time value of money and the principle of compound growth, and discuss the characteristics of common stock.

The time value of money, perhaps the single most important concept in business finance, recognizes the basic fact that, when it’s invested over time, money grows by earning interest or yielding some other form of return. Time value stems from the principle of compound growth—the cumulative growth from interest paid to the investor over given time periods. With each additional time period, the investment grows as interest payments accumulate and earn more interest, thus multiplying the earning capacity of the investment.

The “Rule of 72” is a practical example that ...