Definition Of Terms Flashcards
is a type of interest that is applied to the amount borrowed or invested for the entire duration of the loan, without taking any other factors into account, such as past interest (paid or charged) or any other financial considerations
Simple Interest
is generally applied to short-term loans, usually one year or less, that are administered by financial companies. The same applies to money invested for a similarly short period of time.
Simple Interest
is a sum of money received or paid for the use of someone else’s money. For commercial institutions like banks, interest is also paid for the services rendered.
Interest
is the original amount borrowed, deposited or invested
Principal
is the percent of the principal paid per time or period.
Rate of interest
is the number of years, months or days
Time
is the interest earned at the end of the allotted time between the lender and the borrower.
Simple Interest
can be viewed as a lender or a borrower. Sometimes if we are the investor, we consider the value of our investment after a given period. In this case we introduce the concept of future values or accumulated values or maturity value
Interest
Date when a loan or investment is made, not included in the counting.
Origin Date
Date when the loan is paid or the investment is terminated, included in the
counting
Maturity Date
The time of a loan or investment that is obtained by counting the actual number of days between the origin date and the maturity date based on a Julian calendar
Actual Time
Same manner as the actual time but on the assumption that each month has 30 days.
Approximate Time
Interest is applied whenever a given problem does not specify the time factor to be used. Uses 360 days.
Banker’s Rule
Uses 365 days
Exact Simple Interest
is a ratio and is typically expressed as a percentage. It plays an important role in determining the amount of interest on a loan or investment. The amount of interest charged or earned depends on three important quantities that we will examine next
Simple Interest
is the interest earned on previously earned interest added to the principal. For compound interest, present value will be used instead of principal.
Compound Interest
the number of times the interest will be added to the present value. It may be annually or effective (1), semi – annually (2), quarterly (4), bi – monthly (6), or monthly (12)
Frequency of conversion
annual interest rate
Nominal rate
annual interest rate per frequency of conversion or i = r/n
Periodic rate
product of frequency of conversions and time or m = nt
Number of conversions
