ECON Flashcards
Amount of money earned by a given capital
Interest
Interest directly proportional to the length of time and the amount of principal borrowed
Simple Interest
Computed on the basis of one banker’s year
Ordinary Simple Interest
Computed based on exact number of days
Exact Simple Interest
Interest is computed every end each interest period and the interest earned for that period is added to the principal
Compound Interest
Specifies the rate of interest and the number of interest periods per year
Nominal Rate of interest
The actual rate of interest on the principal for one year
Effective Rate of Interest
Consists of a series of equal payments made at equal intervals of time
Annuity
Equal payments are made at the end of each payment period starting from the first period
Ordinary Annuity
Payment of the first amount deferred a certain number of period after the first
Deferred Annuity
Payments are made at the start of each period, beginning from the first period
Annuity Due
Periodic payments continue indefinitely
Perpetuity
A sequence consisting of end-of-period payments, where each payment increases or decreases by a constant value
Uniform Arithmetic Gradient
A sequence consisting of end-of-period payments, where each payment increases or decreases by a fixed percentage
Geometric Gradient
Sum of the first cost and the present worth of all future payments and replacements which is assumed to continue forever
Capitalized Cost
Increases un the amount of money needed to purchase same amount of goods or services
Inflation
Results in a decrease in purchasing power
Inflation
Decreases in the value of an asset due to usage or passage of time
Depreciation
Sum of the first cost and the present worth of all future payments and replacements which is assumed to continue forever
Capitalized Cost
A method of determining when costs exactly equal revenue
Break-Even Analysis
Attempts to identify the relationship between the cost and benefits of a proposed project
Benefit-Cost Ratio
The break-even interest rate which equates the present worth of a project’s cash outflows to the present worth of its cash inflows
Rate of Return
Measures the yield as a percentage of investment over the life of a project
Rate of Return
A minimum return the company will accept on the money it invests (usually calculated by financial analysts)
Minimum Attractive Rate of Return (MARR)
The same as the interest rate used for Present Worth, Annual Worth, and Future Worth analysis
Minimum Attractive Rate of Return (MARR)
The period required to recover the total investment
Recovery Period
The length of time required to recover fixed capital
Payback Period
A type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings
Stock
An interest transaction where the price of the corresponding load is set down by subtracting the so-called discount from the amount due
Simple Discount Rate
The corresponding interest is credited at the beginning of the discount period (interest in advance), while in the simple interest model the interest is credited in arrears at the end pf the interest period
Simple Discount Rate
