Study Guide - Chapter 11.1 - 11.3 Flashcards
1
Q
Interest
A
- The extra money the bank pays you for the pleasure of using your deposited money
- The extra money you pay to the person who loaned you their money
2
Q
The Three Factors of Accrued Interest
A
- Starting balance
- Interest rate
- Amount of time
3
Q
Simple Interest
A
- Interest paid on the original principle
4
Q
Simple Interest Formula
A
- I = prt
5
Q
Foods for Thought
A
- Time and rate are expressed in the same unit
- Assumed to be annual unless otherwise stated
6
Q
When Converting to Years…
A
- Use the ordinary method
- # of days/ 360
7
Q
Maturity Value
A
- When you borrow money, this amount is the principle plus the interest; the amount due at the end of a loan period
- A = P + I
- A = P(1 + rt)
8
Q
Future Value
A
- When you invest money, this amount is the principle plus the interest; the amount you have at some period of time
- A = P + I
- A + P(1 + rt)
9
Q
Compound Interest
A
- Not calculated on only the original principle, but on the interest that has already been earned
10
Q
“n”
A
- The number of times compounded in a year
11
Q
Compound Interest Formula
A
- A = P( 1 + r/n)^nt
12
Q
Normal Rate vs. Effective Rate
A
- Effective Rate is the annual rate
13
Q
Finance Charge
A
- For customers who purchase things on credit
14
Q
For Credit Cards…
A
- The due date is one month after the billing date
15
Q
First Step…
A
- Calculate the average daily balance
