FV, PV and Continuous Compounding

Question 1

What is called the principal?

Answer 1

The amount of funds originally invested in a project or instrument; the face value to be paid at maturity.

Question 2

What is called the simple interest?

Answer 2

The interest earned each period on the original investment; interest calculated on the principal only.

Question 3

What does PV stand for?

Answer 3

Present Value

Question 4

What does FV stand for?

Answer 4

Future Value

Question 5

What is a formula for calculating Future Value without a compounding interest rate?

Answer 5

FV1 = PV(1 + r)

Question 6

What is a formula for calculating Future Value with a compounding interest rate?

Answer 6

FVN = PV(1 + r)N

Question 7

What is a stated annual interest rate?

Answer 7

A quoted interest rate that does not account for compounding within the year.

Question 8

What is a quoted interest rate?

Answer 8

A quoted interest rate that does not account for compounding within the year.

Question 9

How is stated annual interest rate expressed in a formula?

Answer 9

Rs

Question 10

What is the formula for computing a non-annual compounding?

Answer 10

FVn=PV(1+Rs/m)^mN

Question 11

The formula for the future value of a sum in N years with continuous compounding is

Answer 11

FVn=PV x e^Rs x N

Question 12

What is the formula for effective annual rate?

Answer 12

EAR = (1 + Periodic interest rate)^m