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
1 banker’s year = (?) days
12 months (30 days each)
= 360 DAYS
Computed based on exact number of days.
Exact Simple Interest
Days in a Leap Year?
366
Interest is computed every end of 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 is deferred a certain number of periods 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
Increase in the amount of money needed to purchase same amount of goods or services.
Inflation
Increase in the amount of money needed to purchase same amount of goods or services.
Inflation
Decrease in the value of an asset due to usage or passage of time.
Depreciation
Depreciation per year is constant and with an Interest rate, I.
Sinking Fund Method
Method of determining when costs exactly equal revenue
Cost = Revenue
Breakeven Analysis
Attempts to identify the relationship between the cost and the benefits of a proposed project.
Benefit-Cost Ratio
The break-even interest rate, i, 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)
Period required to recover the total investment.
Recovery Period
Length of time required to recover fixed capital.
Payout/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 loan is set down by subtracting the so-called discount from the amount due.
Simple Discount Rate
Conditions to determine a Leap Year
- Should be divisible by 4.
- Should not be divisible by 100, otherwise, should be divisible by 400 instead.
then it’s a Leap Year.
