Chapter 6 Flashcards
How do PV and discount rates affect each other?
The higher the discount rate, the lower the PV and vice versa.
What classifies an Amortized Loan?
The principal is paid off in increments overtime.
What classifies a pure discount loan?
A pure discount loan is when the borrower receives an amount and is required to pay it back in full with flat interest.
What classifies an Interest-only loan?
The borrower is required to pay off interest every period, and required to pay the principal once due.
What is the formula for continuous compounding interest?
EAR=(e^q)-1
Is APR equivalent to EAR?
No, they are calculated differently.
Is APY equivalent to EAR?
Yes, they have the same formula.
What is an annuity due?
An annuity due is when the cash flows occur at the beginning of a period.
What is a perpetuity?
An annuity that is paid indefinitely. (Also known as a consol)
What is a stated interest rate?
It is the named rate and NOT equivalent to an EAR.
