ENGECON 213: Module 2 & 3 (terms) Flashcards
the interest on borrowed money.
Simple Interest
the amount of money borrowed and on which interest is charged.
Principal
the amount earned by one unit of principal during a unit of time.
Rate of interest
is computed on the basis of one banker’s year, which is 1 banker’s year = 12 months, each consisting of 30 days= 360 days
Ordinary Simple Interest
is based on the exact number of days, 365 days for an ordinary year and 366 days for a leap year.
Exact Simple Interest
is the difference between
what is worth in the future and its present worth.
Discount
is interest paid in advance.
Discount
is the discount on one unit of principal
per unit time.
rate of discount
Months with 30 Days
- April
- June
- September
- November
Months with 31 Days
- January
- March
- May
- July
- August
- October
- December
is the cost of borrowing money. It also refers to the amount earned by a unit principal per unit time.
Rate of interest
two types of rates of interest
- NOMINAL RATE
- EFFECTIVE RATE
specifies the rate of interest and the number of interest periods per year.
NOMINAL RATE
is the actual rate of interest on the principal for one year and its equal to the nominal rate if the interest is compounded annually, but greater than the nominal rate if the number of interest periods per year exceeds one, such as for interest compounded semi-annually, quarterly or monthly
Effective rate of interest
Two nominal rates have the same effective rates.
EQUIVALENT RATES
