Financial Math Final Flashcards

Question

Ordinary Annuity (definition)

Answer 1

payments occur at the END of each rent period

Answer 2

payments occur at the BEGINNING of each rent period

Answer 3

total present value of all payments one interest period BEFORE first payment (at the beginning of first rent period)

Answer 4

[ 1 - (1 + i)^-n ] An= R * ------------------- [ i ]

Answer 5

``` R = (Sn) / [((1 + i)^n - 1) / i ] R = (An) / [(1 - (1 + i)^-n) / i ] ```

Answer 6

the TOTAL PRESENT VALUE of the remaining payments

Answer 7

1. to APPROXIMATE the # of payments, we must round to the nearest WHOLE NUMBER 2. if we want to save AT LEAST the target value, we need to ROUND UP 3. to save the target value EXACTLY, we round DOWN to get a # of full payments, and then do a separate calculation to find the amount of the final, partial payment

Answer 8

PMT @ END for ORDINARY annuities PMT @ BEGIN for annuities DUE **** PMT= is always NEGATIVE

Answer 9

requires the annual percentage rate to be stated on all loan papers or contract documents issued by another lender. The stated finance charge or interest rate must include all costs included in obtaining a loan. Allows the borrower to change his mind within 3 business days.

Answer 10

the nominal rate at which the cash value of the loan equals the present value of the payments

Answer 11

a simple or discount interest loan paid back on a payment schedule instead of with a lump sum

Answer 12

used for rebates given on add-on loans, repaid early

Answer 13

n(n + 1) rebate = ------------- * (finance charge) m(m + 1) where: n= # of REMAINING PAYMENTS m= TOTAL # of payments finance charge= INTEREST or DISCOUNT

Answer 14

Sn(due)= R * [(1 + i)^n - 1] ----------------- * (1 + i) [ i ]

Answer 15

[ 1 - (1 + i)^-n ] An(due)= R * ------------------- * (1 + i) [ i ]

Answer 16

to find An(due), go back to the TVM solver, change N to be exactly the time at which the partial payment occurs, enter normal rent, and solve for PV. (can do the same thing to solve for FV.) * *** THEN, (this PV) + (x / [(1 + i)^n]) will equal the Future Value! * *(WHERE: PV is the present value obtained from TVM and X is the partial payment to be found)

Answer 17

based on the future value with interest paid at the beginning of the term

Answer 18

D=Sdt WHERE: D=discount=cost for the use of borrowed $ S=amount= money being borrowed in the loan (future value of money) d=discount interest rate (/yr) t= term= length of the loan in years

Answer 19

P = S (1 - dt)

Answer 20

P S = --------- (1 - dt)

Answer 21

multiplying by (1 - dt) moves money backwards in time and dividing by (1 - dt) moves money forward in time.

Answer 22

d i i = ---------- d= --------- (1 - dt) (1 + it)

Answer 23

step 1. find the future value of the note if it is not given already step 2. find the present value when the note is moved back to the sale date

Answer 24

the government borrows money by selling treasury bills at competitive public auctions via bank discount bids given as percentages.

Answer 25

an informal network for buying and selling short-term credit instruments

Answer 26

organized exchanges located in a specific place (i. e. NYSE)

Answer 27

promissory notes sold by a corporation to raise money

Answer 28

loans between commercial banks (Large banks borrow from small banks to maintain their minimum legal reserve funds)

Answer 29

loan instruments commonly used to expedite transaction between importers and exporters. The importer's bank acts as a middle man and assumes the legal obligation to make a payment

Answer 30

when working with discounted loans/securities, the amount given is typically the FUTURE VALUE

Answer 31

simple interest applied repeatedly.

Answer 32

if interest is earned or computed m times a year, then we apply the simple interest formula every 1/mth of a year. this period of time is called an interest period

Answer 33

The yearly interest rate, denoted i(nom)

Answer 34

i = i(nom) / m

Answer 35

S = P (1 + i)^n n = m*t where m= # of interest period per year & t= # of years in the term

Answer 36

S P= ------------- (1 + i)^n

Answer 37

simple -- only earn interest on principal | compound -- also earn interest on interest (this is the better option in the long term)

Answer 38

the equivalent simple interest rate earned by investment over the course of one year.

Answer 39

i(eff) = [1 + (i nom/ m)]^m - 1

Answer 40

i(nom) = m * [(1 + i eff)^1/m - 1]

Answer 41

( S )^1/n i = ( ----- ) - 1 ( P )

Answer 42

ln (S/P) n= ----------- ln (1 + i)

Answer 43

step 1. future value calculation step 2. t = Int Charges / Present Value * Interes *** will give a decimal answer step 3. t = 360 * (decimal from step 2)

Answer 44

when using an annuity to save $, we often wait several interest periods after the last payment is made before using the money -- called a fortune annuity.

Answer 45

Sn(for) = R * [(1 + i)^n - 1] ----------------- (1 + i) ^p [ i ] *where: p = the number of interest periods between the end of the last payment and when you take out the money.

Answer 46

when using an annuity to pay off a debt, we often wait several interest periods before making the first payment. This is called a deferred annuity.

Answer 47

[ 1 - (1 + i)^-n ] An(def) = R * ------------------- * (1 + i) ^(m-1) [ i ]

Answer 48

if we invest money and never withdraw the principal, we can generate an infinite sequence of payments. This is called a perpetuity.

Answer 49

``` R = i * A(infinity) and A(infinity) = R/i A(infinity) = principal = total present value of all payments ```

Answer 50

interest is compounded at the same frequency that payments are made

Answer 51

payments occur more or less frequently than interest is compounded

Answer 52

if we have a general annuity, we can turn this into a simple annuity by pretending that interest is computed p times per year at a rate per period j that is equivalent to i. j = (1 + i)^k - 1 WHERE: # of interest periods per yr k = ------------------------------------------ # of rent periods per yr

Financial Math Final Flashcards

(76 cards)