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15 Cards in this Set
- Front
- Back
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Rate of Interest |
It is the cost (or change) of borrowing (or lending) a dollar for a period. |
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Future Value, FV. |
The FV is the value of amount(s) of money, derived by bringing this (these) amount(s) forward at a given interest rate for a specified number of periods. |
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Present Value, PV |
The PV is the value of amount(s) of money, derived by bringing this (these) amount(s) backward to the current time at a given rate of interest. |
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Compound Interest. |
Compound interest refers to a situation where interest is earned not only on the initial principal but also on interest previously earned. A situation where interest is always earned only on the initial principal is known as the simple interest situation. |
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An Annuity. |
Equal periodic amounts of money over a given number of periods are known as an annuity. |
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An Ordinary or a Deferred Payments Annuity. |
It is an annuity where the equal cash flows are paid or received at the end of each of the given number of periods. |
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An Annuity In-advance or an Annuity Due. |
This is an annuity where the equal amounts of money are being paid/received at the beginning of each of given number of periods. |
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Sinking Fund Payments. |
These are payments which are most commonly the same periodic amounts; they are required, or sometimes desired, payments designed to amortize a bond, or a preferred stock, or to retire any fixed commitment obligation, or accumulate a fixed amount at a give future date. |
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The Sinking Fund Factor, SFF. |
A factor or a mathematical formula that makes an annuity over a given number of periods backward in time of a given future single amount, at a stated interest rate. |
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A Mixed Series of Cash Flows. |
When at least some of the periodic amounts of money are not equal to each other over a given number of periods, we have a situation of a mixed series of cash flows. |
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The Compound Rate and the Discount Rate. |
When the interest rate is used to calculate a FV, it is known as the compound rate, and when it is used to calculate a DV, it is known as the discount rate. |
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The Effective Annual Interest Rate. |
It is the annual rate of interest that takes into account the intra-year compounding effect |
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Perpetuity. |
A perpetuity is an annuity where the number of periods is infinity. |
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Loan Amortization. |
It refers to the payment of a loan in a series of installments where each installment also involves the payment of some principal. |
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The Capital Recovery Factor as the Loan Amortization Factor. |
This is a factor or a formula that makes an annuity over a given number of periods forward in time of a current sum of money, at a stated rate of interest. |
