Learning Outcome 4 - 3 standard questions / Apply the principles of the time value of money Flashcards
Apply the principles of the time value of money
1
Q
What is the EAR/APR formula?
A
EAR = (1 + (r/n))° - 1 (x 100)
r = interest rate as a decimal
n = time period
° = time period
2
Q
EAR is often referred to as APR or AER. What products are APR and AER typically quoted on?
A
APR = loans
AER = deposits
3
Q
What is the formula for calculating real returns?
A
R NOM – R INF
(nominal return - inflation rate)
4
Q
What is the formula for calculating nominal returns?
A
R REAL + R INF
(real return + inflation rate)
5
Q
What is a real return of an investment?
A
The return after adjusting for inflation
