Financial Concepts Overview

Study Notes

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.