Finance Concepts: Interest and Annuities

Amount paid or earned for using money.

Interest calculated on the principal and accumulated interest.

Series of equal payments at regular intervals.

Payments at same time as interest.

Payments made at the end of each interval.

Original amount borrowed or invested.

I = Prt

A = P(1 + r)^t

Interest is the amount paid or earned for the use of money. It's like a fee for borrowing money or a reward for lending it.

Compound interest is interest calculated on the principal and then added to it. It's like earning interest on your interest, so it grows faster!

An annuity is a sequence of payments made at equal intervals. It's like a regular, predictable income stream.

A general annuity has payment intervals that differ from interest periods. It's like making payments more frequently than the interest is calculated.

A contingent annuity involves payments that continue indefinitely. It's like an endless stream of income.

An annuity due involves making payments at the beginning of each interval. Like paying rent at the start of the month.

The principal is the original amount borrowed or invested. It's the foundation of your loan or investment.

The formula to find the unknown rate is $r = rac{I}{Pt}$ where r is the interest rate, I is the interest earned, P is the principal, and t is the time in years.

The lender is the one who provides funds for investment or borrowing. They're the source of the money.

The maturity value is the total amount the lender receives, including principal and interest. It's the final payout.

The formula for computing simple interest is $I = Prt$, where I is the simple interest, P is the principal, r is the interest rate, and t is the time period.

The compound interest formula is $A = P(1 + r)^t$, where A is the final amount, P is the principal, r is the interest rate, and t is the time in years.