ECON TERMS 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 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
results in a decrease in purchasing power
inflation
decrease in the value of an asset due to usage or passage of time
depreciation
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 (BCR)
benefit-cost ratio (BCR) _____ than 1 have greater benefits than costs; hence, the project should be considered
greater
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
minimum return the company will accept on the money it invests (usually calculated by financial analysts)
minimum attractive rate of return (MARR)
it is 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
the capital which is invested in acquiring fixed assets for business such as a building, equipment, machinery, etc.
fixed capital
represents the amount of money utilized for financing day to day business operations
working capital
it is a form of loan where the holder is the lender (creditor), the issuer is the borrower (debtor), and the coupon is the interest
bonds
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 discount from the amount due
simple discount rate
the corresponding interest is credited at the beginning of the discount period (interest-in-advance)
simple discount rate
the interest is credited in arrears at the end of the interest period
simple interest model
