Finance Concepts: Interest and Annuities

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Questions and Answers

What does the term 'principal' refer to in financial contexts?

The total amount received after maturity

The original amount borrowed or invested (correct)

The interest accrued on an investment

The total payment over time including interest

What distinguishes compound interest from simple interest?

It does not use any formulas for calculation

It is computed only on the principal amount

It is computed on the principal and accumulated interest (correct)

It only considers interest earned before withdrawal

What type of annuity involves payments being made at the end of each interval?

Ordinary annuity (correct)

Contingent annuity

Simple annuity

Annuity due

How does a general annuity differ from a simple annuity?

General annuities have changing payment intervals Signup and view all the answers

What best defines a contingent annuity?

Payments extend indefinitely Signup and view all the answers

What is the correct formula for simple interest?

$I = Prt$ Signup and view all the answers

What does the maturity value in a financial contract represent?

The total amount collected by a lender including principal and interest Signup and view all the answers

What is the formula for calculating compound interest?

$A = P(1 + r)^t$ Signup and view all the answers

What is the amount paid or earned for the use of money?

Interest Signup and view all the answers

What kind of interest is computed on the principal and then added to it?

Compound interest Signup and view all the answers

What kind of interest is computed on both the principal and the accumulated past interests?

Compound interest Signup and view all the answers

What is a sequence of payments made at equal or fixed intervals or periods of time (installments)?

Annuity Signup and view all the answers

What is an annuity where the payment interval is not the same as the interest period?

General annuity Signup and view all the answers

What type of annuity are the payments made at the end of each payment interval?

Ordinary annuity Signup and view all the answers

What type of annuity do the payments extend over in an indefinite or indeterminate length of time?

Contingent annuity Signup and view all the answers

In which type of annuity are the payments made at beginning of each interval?

Annuity due Signup and view all the answers

What is the amount of money borrowed or invested on the origin date?

Principal Signup and view all the answers

What's the formula for unknown rate?

r = I / Pt Signup and view all the answers

What is person or institution that invests the money or makes the funds available?

Lender Signup and view all the answers

What is the amount after t years that the lender receives from the borrower on the maturity date?

Maturity value Signup and view all the answers

What is the formula for computing simple interest?

Is=Prt Signup and view all the answers

Study Notes

Interest

Interest is the amount paid or earned for using money.

Compound Interest

Compound interest is calculated on the principal and the accumulated past interest.

Compound Interests

Compound interest is calculated on both the principal and the accumulated past interest.

Annuity

Annuity is a series of payments made at regular intervals.

General Annuity

A general annuity has payment intervals different from interest periods.

Simple Annuity

A simple annuity has payment intervals that match interest periods.

Ordinary Annuity

Ordinary annuities make payments at the end of each payment interval.

Contingent Annuity

A contingent annuity has payments that continue indefinitely or for an uncertain time.

Annuity Due

Annuity due makes payments at the beginning of each payment interval.

Principal

The principal is the original amount borrowed or invested.

Unknown Rate Formula

The formula for finding the unknown rate is r = I / Pt

Lender

A lender provides funds for investment or borrowing.

Maturity Value

Maturity value is the total amount received by the lender, including principal and interest.

Simple Interest Formula

The formula for simple interest is I = P * r * t

Compound Interest Formula

The formula for compound interest is A = P(1 + r)^t

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Description

Test your knowledge on essential finance concepts including interest, compound interest, and different types of annuities. This quiz covers key definitions and formulas that are foundational in understanding financial mathematics. Perfect for students and professionals alike who want to solidify their understanding of these topics.