Chapter 14 Flashcards
Two interest rates are said to be equivalent if
for the same amount borrowed, over the same period of time, the same amount is owed at the end of the period of time.
Define nominal rate of interest
rate quoted per year. Equivalent to interest rate per compounding period multiplied by the number of compounding periods.
The amortization period is used to calculate __ __ __ ___ ___ ___.
the size of the required payments
When comparing interest rates to one another, it is necessary to compare rates that have the ___ frequency of compounding in order to accurately assess the cost of borrowing.
same frequency
Define annual effective rate
j1 is an annual interest rate compounded once a year
When is the OSB of a loan the greatest?
at the time the loan is created
Consider a fully amortized loan. If the periodic payments are rounded up to the next higher dollar, how will this affect the size of the final payment?
rounding up payments allows the borrower to pay off the loan faster, and pay less interest in total. The final payment will become smaller.
When a monthly payment is divided in half and paid every two weeks, it is known as a …
biweekly accelerated payment
With constant payment mortgage loans, a large portion of each of the early payments is allocated to the payment of ___.
interest
What is OSB?
the amount of principal owing to the lender at a specific point in time.
