ECON 1 Flashcards
refers to any medium of exchange that is widely accepted in the payments of goods or services and/or in settlement of debts.
money
is the amount of money paid for the use of money called capital for a certain period of time or the income produced by money which has been loaned.
interest
is the interest to be paid which is proportional to the length of time the principal is used.
Simple interest
Types of simple interest
ordinary and exact
computed based on banker’s year
Ordinary Simple Interest
computed based on exact number of days
exact simple interest
is a simple graphical representation of cash flows drawn on a time scale. It is used to simplify problems having diverse receipts and disbursements
cash flow diagram
is a written promise of a person or business (as maker) to pay another person or business (payee) within a specified period of time.
promissory notes
types of notes
simple interest note and bank discount note
is a note where the value is stated on the note (face value) which corresponds to the principal amount, the total amount to be repaid (maturity value of the note), and the date to which the amount is due (maturity date)
simple interest note
is a note where the value is stated on the note corresponds to the maturing amount to which the interest is being calculated and is deducted in advance. (The amount received by the maker is proceeds)
bank discount note
is the difference between the present worth and the future worth.
discount
is the interest earned by the principal which is added to the principal to earned an interest in the succeeding period.
COMPOUND INTEREST
types of rate of interest
Normal rate of interest
Effective rate of interest
specifies the rate of interest and a number of interest periods in one year
nominal rate of interest
is the actual or exact rate of interest on the principal during one year
effective rate of interest
is obtained by setting the sum of the values of a certain comparison / data to a single date point (known as the time reference).
equation value
the interest is compounded at the end of each finite – length period such as month, quarter or a year. It is assumed that cash payment is done once a year but the compounding is continuous throughout the year.
discrete compounding
is a series of equal payments made at equal interval of time
annuity
types of annuity
ordinary
deferred
annuity due
perpetuity
is one where the payments are made at the end of each payments
ordinary
Is an annuity whose first payment is deferred to a certain number of periods.
deferred
Is an annuity whose first payment is made at the start of each period.
annuity due
is an annuity whose payment periods continues indefinitely
perpetuity
the sum of the first cost and the present worth of all costs of replacement, operation and maintenance on a certain periods or forever). This is an important application of annuity
capitalized cost
any method of repaying a debt, including the principal and interest and is usually by a series of equal payments at equal interval of time.
amortization
is an instance where the disbursement or receipts involves is uniformly increasing or decreasing amount on each period
uniform arithmetic gradient
refers to the decrease in the value of an asset due to usage of passage of time
Depreciation
types of depreciation
- Physical
- Functional
decrease in demand
functional
mechanical and chemical changes
physical
purpose of depreciation
- recover the capital
- charge the cost to cost of production
