Chapter 6 - Annuities & Perpetuities Flashcards
[Ordinary] Annuity
A level stream of cash flows for a fixed period of time
Annuity Due
An annuity for which the cash flows occur at the beginning of the period
Perpetuity
An annuity in which the cash flows continue forever
Consol
A type of perpetuity, esp. in Canada and UK
Stated interest rate
The interest rate expressed in terms of the interest payment made each period. Also called the quoted interest rate.
Effective Annual Rate (EAR)
The interest rate expressed as if it were compounded once per year.
Annual Percentage Rate (APR)
The interest rate charged per period multiplied by the number of periods per year.
Pure Discount Loan
The simplest form of loan; with such a loan, the borrower receives money today and repays a single lump sum at some time in the future.
Interest-Only Loan
With this loan, the repayment plan calls for the borrower to pay interest each period and to repay the entire principal at some point in the future. (Note: if there is just one period, a pure discount loan and an interest-only loan are the same thing.)
Principal
The original loan amount
Amortized Loans
An alternative loan with which the lender may require the borrower to repay parts of the loan amount over time. The process of providing for a loan to be paid off by making regular principal reductions is called amortizing the loan.
Balloon Payment (AKA Bullet Payment)
A single lump sum payment that finally pays off a loan after making fixed monthly payments for a set period of time
Cash Flows Worksheet on calculator.
CF
Interest Conversion Worksheet on calculator.
2nd, 2
How and when to change calculator to “beginning”.
2nd, PMT, 2nd, set. Do this when _____.
