Which of the Following Multiplies the Earning Capacity on an Initial

question 90

Multiple Choice

Which of the following multiplies the earning capacity on an initial investment as interest payments accumulate and earn even more interest?

• A) Compound growth
• B) Rule of 72
• C) Time value of money
• D) Interest
• E) Market value

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Definitions:

Fair Market Value

An estimate of the market value of a property, based on what a knowledgeable, willing, and unpressured buyer would likely pay to a knowledgeable, willing, and unpressured seller in the market.

Interest Rate Swap

A financial derivative contract whereby two parties exchange interest rate cash flows, often swapping a fixed rate for a floating rate, or vice versa, to manage exposure to interest rate fluctuations.

Fixed-rate Debt

A type of debt instrument where the interest rate remains constant throughout the life of the borrowing.

Floating-rate Debt

A form of borrowing where the interest rate fluctuates over time based on a benchmark or index rate.