Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
35 Cards in this Set
- Front
- Back
- 3rd side (hint)
|
Example of your client borrows $2000 at 9.0000% interest rate at the end of the year client pays $750 |
Look at the image for the amortize loan |
|
|
|
What is future value |
FV is how much money you have today that grows to a given amount when compounded |
|
|
|
How do you calculate PV (present value) of a lump sum. The formula |
PV= FV (1 + r) ^ -N
You take the future value and multiply it by 1 plus the interest rate given and raise that amount to the number of times the amount is compounded |
|
|
|
When finding the PV for a lump sum is the N in the formula negative or positive |
When solving for the PV the n in the formula is a negative PV= FV (1+I) ^ -n |
|
|
|
How else can you find the PV besides using PV=fv(1+I)^-n |
You can put FV over interest ^ n... notice when you divide the FV by the interest rate you don't turn the n into a negative |
|
|
|
Semi annually |
Twice a year |
|
|
|
Annually |
Once a year |
|
|
|
Quarterly |
Four times a year |
|
|
|
Monthly |
Twelve times a year |
|
|
|
Weekly |
52 times a year |
|
|
|
Daily |
365 times a year |
|
|
|
What is the formula for FV (future value) |
FV= PV ( 1 + I ) ^ n Future value = present value times one plus the interest rate raised to the compounded amount |
|
|
|
What do you do if the problem says 6% interest compounded semiannually.. how do you solve for the i in the formula (1+I)^n |
You take 6% change into a decimal 0.06 and then divide this number by 2 (semiannually) so you get 0.06/2 |
|
|
|
How do you solve for the n # of compounded periods if the problem says. Compounded semiannually for 10 years |
N= number of compounding periods ( years * word) so this would be 10* 2= 20 so the n= 20 |
|
|
|
Example) $1000 invested at 3% year compounded monthly for 5 years. How do you solve |
First use formula FV= pv(1+I)^n now solve for the interest by taking 0.03/12 because the problem said compounded monthly. This becomes FV=pv(1+.025) now solve for the N by taking the total number of years and multiplying by the number of compounds so n= 5*12= 60 so... FV=pv(1+.025)^60 |
|
|
|
What does BpB stand for |
Beginning principle balance |
|
|
|
Your client borrows $1000 at 5.0000% interest. At the end of the year your client pays $300. How much does your client owe at the end of the year after making a payment. |
First find out the interest on the $1000 borrowed by doing principle*interest, 1000*0.050=1050. Then take $1050 and subtract amount paid $300 so 1000-300=$750 |
|
|
|
EPB |
Ending principle balance |
|
|
|
IntPMT |
Interest payment |
|
|
|
IntPMT |
Interest payment |
|
|
|
How do you calculate the intPMT |
BPB*interest rate |
|
|
|
PronPMT |
Principle payment |
|
|
|
TotPMT |
Total payment |
|
|
|
TotPMT |
Total payment |
|
|
|
How do you calculate TotPMT |
IntPMT+prinPMT |
|
|
|
TotPMT |
Total payment |
|
|
|
How do you calculate TotPMT |
IntPMT+prinPMT |
|
|
|
How do you calculate the interest payment example) client borrows $2000 at an interest 9.0000% how much do you pay in interest on $2000 at 9.0000% interest |
You multiple the loan amount by the interest rate. So $2000*.09= $180. So the interest you pay is $180. So the IntPMT on $2000 at .09% interest is $180 |
|
|
|
Example of your client borrows $2000 at 9.0000% interest rate at the end of the year client pays $750 |
Look at the image for the amortize loan |
|
|
|
Example of your client borrows $2000 at 9.0000% interest rate at the end of the year client pays $750 |
Look at the image for the amortize loan |
|
|
|
Definition of amortization |
Repayment of loan principle over time. Example of a company has a $100,000 loan outstanding and repays $500,000 of that principle every year, we would say that $500,000 of loan had amortized each year. |
|
|
|
Definition of amortization |
Repayment of loan principle over time. Example of a company has a $100,000 loan outstanding and repays $500,000 of that principle every year, we would say that $500,000 of loan had amortized each year. |
|
|
|
Just remember when ever you take out a loan you have to apply the interest to that loan in order to see how much you have really paid towards the loan |
Example) loan $2000 at interest rate of $9% you pay $750 towards the loan. How much do you still owe? You have to add the interest to the $2000 before subtracting the the $750 from the $2000 so you do $2000*.09 that gives you $180 you add this to the total amount $2000+$180 = $2180 now subtract the $750 from this number $2180-$750= $1430 that's how much you still owe on the loan after making the $750 payment |
|
|
|
Amortization example |
Back (Definition) |
|
|
|
Will moving a cash flow around on the time line change the present value or the future value ? |
Example of a perpetuity problem. Bank is willing to loan you $10,000 in return for a payment of $1000 @ the end of each year forever. When the interest rate is 10%. How do you calculate the PV |
Calculate the interest PMT = (pv*r)= 10,000*.10= $1,000 for a perpetuity |
