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MMW Chap 6 & 7 > Chapter 6: Mathematics of Finance > Flashcards

Chapter 6: Mathematics of Finance Flashcards

1
Q

Fee paid for borrowed money

A

Interest

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2
Q

Interest that is calculated based on the principal amount borrowed/invested not including the previous interest/s

A

Simple Interest

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3
Q

Simple Interest Formula

A

I = PRT

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4
Q

Future/Maturity Value for Simple Interest Formula

A

A = P + I

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5
Q
  • Is an interest calculated on any balance including previous interest/s
  • Future amount/value of the money loaned/invested is usually the focus
A

Compound Interest

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6
Q

Amount calculated after n years of having compound interest

A

Compound Amount

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7
Q

Compound Interest Formula

A

A = P (1 + r/n)^nt
P = A / ((1 + r/n)^nt)

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8
Q

Small plastic/metal card issued by a bank/financial company

A

Credit Card

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9
Q

Represents a line of credit

A

Credit Card

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10
Q

Where to Get Credit Card

A
  • Mail
  • Financial Institutions
  • Department/Chain Stores
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11
Q

Account with money that you can borrow repeatedly

A

Line of credit

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12
Q

Deducting money from checking/savings account

A

Debit Card

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13
Q

7 Basic Credit Card Features

A
  • Credit Card Type
  • Balance
  • Grace Period
  • Annual Percentage Rate (APR)
  • Credit Card Fees
  • Credit Limit
  • Rewards and Perks
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14
Q

Single credit card issuer may issue multiple versions of the same type of credit card

A

Credit Card Type

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15
Q
  • Total amount owed
  • Higher the credit card balance, the lower the available credit
A

Balance

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16
Q

Amount of time you have to pay your balance in full before a finance charge/interest is applied

A

Grace Period

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17
Q

Grace Period is typically how many days

A

20 - 25

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18
Q

Balance transfers/cash advances typically do not have a _________

A

grace period

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19
Q

If you carry balance from pervious month, you might not have a _______ for new purchases

A

grace period

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20
Q

Interest rate applied to any balance you carry past the grace period/amount of interest that is charged on a balance over the course of a year

A

Annual Percentage Rate (APR)

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21
Q

Maximum balance you can have on the credit card

A

Credit Limit

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22
Q

These include cashback, miles points, discounts

A

Rewards and Perks

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23
Q

These are based on transaction/penalty

A

Credit Card Fees

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24
Q

6 Types of Credit Card Fees

A
  • Annual Fee
  • Application Fee
  • Balance Transfer Fee
  • Cash Advance Fee
  • Decline Fee
  • Foreign Transaction Fee
25
Q

Fee for every year for using credit card

A

Annual Fee

26
Q

Fee to apply for a card

A

Application fee

27
Q

Fee to move balance of card to another

A

Balance Transfer Fee

28
Q

Fee when you withdraw money from the card or an ATM

A

Cash Advance Fee

29
Q

Fee when you try to make payment on something you do not have the money for

A

Decline Fee

30
Q

Fee when buying something overseas

A

Foreign Transaction Fee

31
Q

9 Types of Credit Cards

A
  • Plain
  • Balance Transfer
  • Rewards
  • Student
  • Charge
  • Secured
  • Limited Purpose
  • Subprime
  • Business
32
Q

3 Types of Rewards Credit Card

A
  • Cashback
  • Points
  • Travel
33
Q

No frills/rewards, has revolving balance up to a certain credit limit

A

Plan CC

34
Q

Low introductory rate n balance transfers for a certain period of time

A

Balance Transfer CC

35
Q

Offers rewards on purchases

A

Rewards CC

36
Q

Reduce balance/redeem cash rewards only as credit

A

Cashback Rewards Cards

37
Q

Based on how much you spend. E.g auto rewards/hotel rewards

A

Points Rewards Cards

38
Q
  • Mileage points
A

Travel Rewards Cards

39
Q
  • Designed for students, may have rewards/low-interest rate on balance transfers
A

Student CC

40
Q

Do not have a spending limit, must be paid in full at the end of each month

A

Charge CC

41
Q

Requires security deposit, equal to credit limit

A

Secured CC

42
Q

Used at specific location, with minimum payment and finance charge

A

Limited Purpose CC

43
Q

Worst credit card products, have highest interest and fees

A

Subprime CC

44
Q
  • For business use, personal credit history is still considered
A

Business CC

45
Q

A type of payment made in the early stages of a purchase of an expensive good or service

A

Down Payment

46
Q

The first/initial payment that one makes when one buys something with an agreement to pay the rest later

A

Down Payment

47
Q

Amount that is borrowed to buy real estate

A

Mortgage Loan

48
Q

When you make your property as collateral for a loan from a financial institution (bank)

A

Mortgage loan

49
Q

Down payment formula

A

Down payment = purchase price x Down Payment %

50
Q

Mortgage loan formula

A

Mortgage loan = Purchase price – Down Payment

51
Q
  • Refers to installment payment of loan
  • Spreading out or gradual payment of a loan/debt over a period of time
  • E.g monthly payments
A

Amortization

52
Q
  • The time period until the final payoff of the mortgage
  • Total number of payments
A

Term

53
Q

2 Types of Mortgages

A
  • Adjustable-rate mortgage (ARM)
  • Fixed-rate mortgage
54
Q

Interest rate is fixed for an initial term then fluctuates with market interest rates

A

Adjustable-rate mortgage (ARM)

55
Q

Interest rate that is set at the beginning and never changes over the entire term of the loan

A

Fixed-rate mortgage

56
Q

Most common fixed-rate mortgage

A

15 and 30 years

57
Q

Refer to a monthly payment on a mortgage

A

Monthly Mortgage Payment/Amortization

58
Q

Monthly Mortgage Payment formula

A

A ((r/n)/1 - [1 + r/n]^-nt)

59
Q

List of each mortgage payment, the payment number, the interest payment, the amount applied toward principal amount, and the resulting outstanding balance to be paid

A

Amortization Schedule

MMW Chap 6 & 7 (3 decks)

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