The three components of compound growth are money, time, and which of the following?

• A. Net sales
• B. Depreciation
• C. Inventory turnover
• D. Interest rate

Answer: (D)

Verified step by step guidance

1. Understand the concept of compound growth: Compound growth refers to the process where the value of an investment grows exponentially over time due to the reinvestment of earnings.
2. Identify the three components of compound growth: These are money (the principal amount), time (the duration over which growth occurs), and the interest rate (the rate at which the money grows).
3. Clarify why interest rate is the correct answer: The interest rate determines how much the principal amount grows during each compounding period. It is a critical factor in calculating compound growth.
4. Eliminate incorrect options: Net sales, depreciation, and inventory turnover are unrelated to the calculation of compound growth. These terms are more relevant to operational or financial performance metrics.
5. Relate the components to the formula for compound growth: The formula is typically expressed as \( A = P \times (1 + r)^t \), where \( A \) is the future value, \( P \) is the principal amount, \( r \) is the interest rate, and \( t \) is the time period.