Financial Concepts Overview

Financial Concepts

• Lender/Creditor: A person or institution providing funds.
• Borrower/Debtor: A person or institution borrowing funds.
• Origin/Loan Date: The date funds are received by the borrower.
• Simple Interest: Interest calculated only on the principal.
• Compound Interest: Interest calculated on both the principal and accumulated interest.
• Principal: The initial amount of money borrowed or invested.
• Annuity: A series of payments made at fixed intervals.
• Payment Interval: The time between consecutive payments.
• Simple Annuity: Payment interval equals the interest period.
• General Annuity: Payment interval doesn't equal the interest period.
• Ordinary Annuity: Payments made at the end of each interval.
• Annuity Due: Payments made at the beginning of each interval.
• Deferred: Payments made after a specified delay.
• Stocks: Shares in a company's ownership.
• Common Stocks: The most common type of stock, with one vote per share.
• Preferred Stocks: Stocks with a preference regarding dividends and liquidation.
• Dividend: Share of a company's profit paid to shareholders.
• Stock Market: A place for buying and selling stocks.
• Dividend per Share: The dividend amount per stock.
• Business Loan: Money given for business purposes.
• Consumer Loan: Money lent for personal needs.
• Term of Loan: The time it takes to repay a loan.
• Amortization Method: Scheduled loan repayment method.
• Mortgage: A loan secured by a property.
• Chattel Mortgage: A mortgage on movable property.
• Bonds: Interest-bearing securities issued by governments or companies.
• Bondholders: Investors who own bonds.
• Bond Market: A market for buying and selling bonds.
• Fair Price of Bond: The present value of all future cash flows from a bond.
• Declarative Sentence: A sentence that makes a statement.
• Imperative Sentence: A sentence that gives a command.

Compound Interest Calculation

• Practice Problem: Calculate maturity value and compound interest for a principal amount, with a specific annual interest rate and period.
• Formula for Maturity Value: F = P(1 + r)t
  • F represents maturity value.
  • P represents the principal amount.
  • r represents the interest rate (as a decimal) .
  • t represents the number of time periods.
  • It is important to use the compounding period for calculation**
• Formula for Compound Interest: Ic = F – P
• Ic represents the compound interest amount.
• Example Values: The provided data includes values for Principal (P), Rate (r), Time (t), and Interest (I). The values in the practice examples include rate (r) and time (t) . Note that some of the examples contain values for maturity value and Interest (Ic), and you will need to calculate or identify values missing that will allow for the calculation.

This quiz covers essential financial concepts including lenders, borrowers, interest types, and annuities. Test your knowledge on terms such as principal, simple interest, and the various types of annuities. Enhance your understanding of how these elements interact in the financial world.