Financial maths definitions Flashcards
accumulated error
collected inaccuracy that can occur when multiple errors are combined
Time value of money
Value of money when factoring in a given amount of interest earned over a given time period
Present Value, Present discounted value
Value on a given date of a future payment or series of future payments, discounted to reflect the time value of money and other factors such as investment risk
Discount rate
When future values are brought back to present values at a given rate of interest the interest rate is called the discount rate
NPV
Net present value. Present value of all cash inflows - present value of all cash outflows
AER / EAR / CAR
Annual equivalent rate is rate of interest used to calculate the amount that is paid to the investor
APR
Annual percentage rate is the interest rate that makes the present value of all future payments equal to the present value of the loan
Bond
Certificate issued by a government or a public company promising to repay borrowed money at a fixed rate of interest at a specified time
Interest
Sum of money you pay for borrowing or the sum of money paid to you for lending
Compounding
The ability of an asset to generate earnings which are reinvested to generate their own earnings
Depreciation
Calculated in order to write off the value of an asset over its useful economic life, causes are wear and tear, passage of time and obsolescence
Reducing balance method
Cost of the asset is depreciated at a constant rate every year.
Annuity
A regular stream of fixed payments over a specified time taking into account the time value of money. Used also as term for a series of regular payments made to an individual for a specified time
Amortisation
Process of accounting for a sum of money by making it equivalent to a series of payments over time
Amortised loan
Loan that involves paying back a fixed amount at regular intervals over a fixed period of time ex: mortgages
