Flashcards in Chapter 5 Deck (13):

1

## simple interest

### interest is earned only on principal

2

## compound interest

###
interest on interest

- when interest paid on the investment during the first period is added to the principal, then during the second period interest is earned on this new sum

3

## future value

### the amount to which your investment will grow

4

## Future value can be increased by (2)

###
1. increasing the number of years for which money is invested

2. investing at a higher interest rate

5

## Present value

### current value of a future payment

6

## present value is lower if (2)

###
1. time period is longer

2. interest rate is higher

7

## annuities

### series of equal dollar payments for a specified number of years

8

## order annuity

### payments occur at the end of each period

9

## compound annuity

### depositing an equal sum of money at the end of each year for a certain number of years and allowing it to grow

10

## annuities due

### each annuity payment occurs at the beginning of the period rather than at the end of the period

11

## amortized loans

### a loan that is paid off in equal periodic payments

12

## effective annual rate

### EAR; an investments annual rate of interest when compounding occurs more often than once a year

13