MODULE 2 AND 3 Flashcards
From a borrower’s viewpoint, it is the amount of money paid for the use of borrowed capital.
Interest
What is interest from a borrower’s viewpoint?
the amount of money paid for the use of borrowed capital
From the lender’s viewpoint, it is the income produced by the money that he/she has lent.
Interest
What is interest from a lender’s viewpoint?
income produced by the money he/she has lent
It is the interest on borrowed money.
Simple Interest
It is the amount of money borrowed and on which interest is charged.
Principal
It is the amount earned by one unit of principal during a unit of time.
Rate of interest
It is computed on the basis of one’s banker year, which is 1 banker’s year = 12 months, each consisting of 30 days = 360 days.
Ordinary Simple Interest
It is based on the exact number of days, 365 days for an ordinary year and 366 days for a leap year.
Exact Simple Interest
On a negotiable paper, it is the difference between what is worth in the future and its present worth.
Discount
It is interest paid in advance.
Discount
It is the discount on one unit principal per unit time.
rate of discount
It is the cost of borrowing money.
rate of interest
It refers to the amount earned by a unit principal per unit time.
rate of interest
What are the two types of rates of interest?
- nominal rate of interest
- effective rate of interest
It specifies the rate of interest and the number of interest periods per year.
Nominal rate
It is the actual rate of interest on the principal for one year.
Effective rate of interest
True or False. Effective rate of interest is 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.
True
It is the interest earned by the principal when invested at compound interest.
Compound interest
The concept of ___________ is based on the assumption that cash payments occur once per year but compounding is continuous throughout the year.
continuous compounding
It refers to the diagram where money is projected as a function of time.
cash flow
