518 words - 3 pages

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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.

PMT- Payment

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.

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Yes this statement is true.

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