Chapter 3

Created by

BOLON MARJORIE

Cards (24)

relationship between time and money that a peso received today is worth more than a peso promised at some time in the future
money today can be invested and potentially grow into a larger amount in the future
interest 
payment for the use of money
interest 
excess cash received or repaid over and above the amount lent or borrowed
risk of default 
level of credit risk or risk of nonpayment
market rate of interest
prevailing interest rate in the market or in a business environment
principal 
the amount borrowed or invested
interest rate 
percentage of the outstanding principal
outstanding principal 
remaining balance, amount of not yet been paid or settled
time 
number of years of fractional portion of a year that the principal is outstanding
simple interest 
compute on the amount of the principal only
fixed interest 
only basis is the initial investment
simple interest  
usually applies only on short term investments and debts that involves a time span of 1 year or less
compound interest 
computes not only the principal but also the interest earned to date on that principal, assuming the interest is left on deposit
reinvestment of interest 
earning interest on interest
interest is earned in two components
interest based on the original principal
interest is earned based on the accumulated interest
rate of interest 
an annual rate that must be adjusted to reflect the length of the compounding period if less than one year
compounding periods 
are the time intervals between when interest is added to account
number of time periods 
number of compounding periods, may be equal or less than a year
future value 
the value at a future date of given sum/s invested assuming compound interest
present value 
the value no of a future sum/s discounted assuming compound interest
compounding 
moves forward in time using a process that we call accumulation
discounting 
moves backward in time using a process
discorporate 
the interest rate in present value situation