Module 2 Flashcards
Assume what sort of interest unless questions states otherwise?
Compound
What is the concept of present value?
Time value of money
Unwinding impact of inflation/depreciation
The sum of money borrowed or lent is called what?
The principal
What is compound interest?
When internet is paid on the principal plus the accumulated interest
Why do we calculate the effective annual rate of interest?
Lenders may charge interest more frequently than annually
What is discounting?
The process of calculating the present value of income and expenditure which will be earned or paid at future dates
Rate of interest is known as the discount rate
Discount factors in table
Annuity factor is in
Cumulative present value tables, cumulative discount factors
Cumulative present value factors are used for?
Repetitive cash flow
What are perpetuities?
A special case of annuity that runs indefinitely
e.g some gov securities (debt)
If the first payment or receipt occurs at once?
This does not require to be discounted
