a. PV- Present Value, the beginning amount.
Int- Interest per year
FV- Future Value or ending amount in an account where N is the number of periods the money is left in the account.
PVA- Present value annuity
FVA- Future value annuity and the ending value of a stream of equal payments.
M- Number of compounding period per year
I nom- The nominal , or quoted, interest rat
b. Opportunity cost rate- is the rate of return you can earn on an alternative investment of a similar risk.
c. Annuity- a series of equal periodic payments for a specific number of periods.
Lump sum payment- When you pay a large amount of amount due.
Cash flow- annuities with their equal payments in each period
f. Outflow- the outflow of the payment when completed.
Inflow- the inflow of the present value
Time line- helps visualize what’s happening in a particular problem.
Terminal value- is a horizon value of a security is the present value at the future point in time of all future cash flows when expect stable growth rate forever.
g. Compounding - is the process of determining the future value of cash flow or a series of cash flow. It’s the beginning amount plus interest earned.
Discounting- is the process of determining the present value of future cash flow or a series of cash flow.
h. Annual- once a year when the interest rate is credited
Semiannual- when the annual interest rate is credited twice a year
Quarterly- Four times in the year.
Monthly- monthly payment
Daily Compounding – when something is compounding daily
i. Effective annual rate- this is a rate at produces the same result as if we a compounding at a given period.
Nominal interest rate- This is a rate that is quoted by banks, brokers, and other financial institutions. If the compounding occurs annually, the effective annual rate and the nominal rate are the same.
APR- Annual Percentage Rate
Periodic rate- this is a rate charged by a lender or paid by the borrower each period.
j. Amortization schedule- shows how much of each payment constitutes interest, how much is used to reduce the principal and the unpaid balance at each period of time. It’s also a table that breaks down the periodic fix payment of an installment loan.
Principal versus interest compounded of a payment- It better to pay off your principal first versus the interest.
Amortization Loan- is payoff in equal payments over a specific period. An amortized loan is one that is repaid in equal periodic amounts.
Yes this statement is true.