chapter 2 Flashcards
(31 cards)
refers to wealth in the form of money or property
that can be used to produce more wealth.
capital
refers to wealth in the form of money or other
assets owned by a person or organization that can be used for
a particular purpose such as starting a company or investing.
Capital
owned by individuals who have invested
their money or property in a business project or venture in the
hope of receiving a profit
.Equity Capital-
obtained from lenders for investment,
with a promise to repay the principal amount and interest on a
specific date.
Borrowed Capital
Types of
Capital
Equity Capital-
Borrowed Capital
3. Human Capital
4. Social Capital
5. Natural Capital
a graphical representation of cash flows drawn on a time scale.
Cash Flow
Diagram
Represents thetime with progression of time
moving from left to right (i.e. month, year).
Horizontal line.
Represents cash flows.
Arrows
receipts (positive cash flow or cash inflow i.e income)
arrow up
disbursements (negative cash flow or cash outflow i.e expenses)
arrow below
simplest case involves the equivalence of a single present amount (P)and its future worth (F)
Single Cash Flows
transactions arranged as a
series of equal cash flows at regular intervals.
Equal Uniform Series
cash flow
that increase or decrease by uniform
amount each periods.
Linear Gradient Series
cash
flows that increase or decrease by a
fixed percentage.
Geometric Gradient Series
consists of cash flow
that change with no pattern.
.Irregular Series
Types of Cash
Flows
Single Cash Flows
Equal Uniform Series
Linear Gradient Series
Geometric Gradient Series-
.Irregular Series
the amount of money paid for the use of borrowed capital or income produced by
money which has been loaned
Interest-
the interest on a loan that is based only on the principal. Usually
used for short-term loans where the period is measured in days rather than years.
SIMPLE INTEREST
interest is computed based on the exact
number of days in a given year which is 365 days for a normal year and 366
days during a leap year (which occurs every 4 years, or if it is a century year, it
must be divided by 400).
EXACT SIMPLE INTEREST
discount in simple terms is the interest deducted in advance. It is
the difference between the amount a borrower receives in cash (present worth) and
the amount he pays in the future (future worth).
DISCOUNT
interest which is based on the principal plus the previous
accumulated interest. It may also be defined as ‘interest on top of
interest.” This is usually used in commercial practice especially for
longer periods.
Compound
Interest
-the cost of borrowing money or the amount earned by a unit principal
per unit time
Rate of
Interest
TYPES OF RATES OF INTEREST
nominal rate
effective
this type of annuity is one where the first payment is made several periods
after the beginning of the annuity.
Deferred
Annuity
