Investing your money earns you more money because of which of the following concepts?

• A. Inventory turnover
• B. Depreciation
• C. Compound interest
• D. Amortization

Answer: (C)

Verified step by step guidance

1. Understand the concept of compound interest: Compound interest is the process where the interest earned on an investment is reinvested, allowing the investment to grow exponentially over time. It is calculated on the initial principal and also on the accumulated interest from previous periods.
2. Differentiate compound interest from other terms in the problem: Inventory turnover refers to the efficiency of inventory management, depreciation is the allocation of the cost of an asset over its useful life, and amortization is the gradual repayment of a loan or the spreading out of an intangible asset's cost over time. None of these relate to earning more money through investment growth.
3. Recognize why compound interest is the correct answer: Compound interest directly relates to the growth of money through reinvestment of earnings, which is the key concept behind earning more money from investments.
4. Learn the formula for compound interest: The formula is \( A = P(1 + r)^n \), where \( A \) is the future value of the investment, \( P \) is the principal amount, \( r \) is the annual interest rate, and \( n \) is the number of compounding periods.
5. Apply the concept of compound interest in real-world scenarios: Understand how reinvesting earnings in savings accounts, bonds, or other investment vehicles can lead to exponential growth over time, emphasizing the importance of starting early and allowing time for compounding to work.