Financial Algebra Chapter 3 Flashcards

Banking Basics

• A Checking Account allows customers to deposit, withdraw, and transfer funds.
• A check is Canceled once the money has been received.
• EFT (Electronic Funds Transfer) facilitates electronic movement of money between banks.
• A Hold occurs when funds are temporarily unavailable for cashing checks.
• Direct Deposit sends payroll or government checks straight into an account.
• The Drawer is the account owner who writes checks.

Check Handling

• To cash a check, it must be Endorsed, either by signature or electronically.
• ATMs (Automatic Teller Machines) provide 24/7 access to banking services.
• A Single Account permits only one individual to make withdrawals, while a Joint Account allows multiple owners to access the funds.
• Overdraft Protection enables checks to be paid even if there are insufficient funds in the account.
• A PIN (Personal Identification Number) is required for ATM usage.
• The Payee is the individual or entity to whom the check is made out.

Transactions and Statements

• A Bank Statement summarizes all transactions for a given period, typically one month.
• Reconciling involves verifying bank records to ensure accuracy.
• Outstanding Deposits and Outstanding Checks are transactions not yet reflected in the bank statement.
• The Statement Period specifies the range of dates for recorded transactions.

Savings Accounts

• A Savings Account earns interest on deposited funds.
• Statement Savings accounts provide monthly statements detailing all activities, including interest earned.
• The Simple Interest Formula is defined as I = (p)(r)(t).

Investment Options

• A Money Market account involves higher interest rates, requires a larger minimum deposit, and may limit monthly transactions.
• CDs (Certificates of Deposit) guarantee a fixed interest rate and payment until a specified maturity date.

Interest Concepts

• Maturity refers to a predetermined future date for financial products.
• Interest Rates dictate the earnings on deposited money.
• Compound Interest earns money on both the original deposit and accumulated interest.

Types of Compound Interest

• Annual Compound Interest is compounded yearly.
• Semiannual and Quarterly Compound Interest occur twice and four times a year, respectively.
• Monthly Compound Interest is compounded each month, while Daily Compound Interest compounds every day throughout the year.

Interest Calculations

• The Compound Interest Formula is represented as B = p (1 + r/n) ^(n)(t).
• APR (Annual Percentage Rate) uses the annual interest rate for calculations.
• APY (Annual Percentage Yield) provides a comparison of interest rates based on compounding.

Advanced Concepts

• Continuous Compounding refers to an account compounding interest infinitely.
• The letter "e" is the mathematical constant used in calculations involving continuous compounding interest.