Podcast
Questions and Answers
What is the lender's role in a financial transaction?
What is the lender's role in a financial transaction?
- Receiving the money from the borrower on the maturity date
- Investing the money or making the funds available (correct)
- Owing the money or availing the fund from the borrower
- Determining the exact and ordinary interest
Which term refers to the date on which money is received by the borrower?
Which term refers to the date on which money is received by the borrower?
- Principal (P)
- Time or term (t)
- Origin or loan date (correct)
- Repayment date or maturity date
What does 'Simple Interest' refer to?
What does 'Simple Interest' refer to?
- Amount after t years that the lender receives from the borrower on the maturity date
- Annual rate charged by the lender
- Interest that is computed from the principal and on the accumulated past interests
- Interest that is computed on the principal and then added to it (correct)
What does the term 'Compound Interest' mean?
What does the term 'Compound Interest' mean?
What is the 'Maturity value' or 'Future value' in a financial transaction?
What is the 'Maturity value' or 'Future value' in a financial transaction?
What is considered as Principal (P) in a financial transaction?
What is considered as Principal (P) in a financial transaction?
In the context of finance, what is the difference between 'actual number of days' and 'approximate number of days'?
In the context of finance, what is the difference between 'actual number of days' and 'approximate number of days'?
What is the definition of 'Compound Interest' in the context of finance?
What is the definition of 'Compound Interest' in the context of finance?
In the context of finance, what does 'Rate' (r) refer to?
In the context of finance, what does 'Rate' (r) refer to?
What is the 'Effective Interest Rate' in finance?
What is the 'Effective Interest Rate' in finance?
What is a key requirement for an annuity in finance?
What is a key requirement for an annuity in finance?
In finance, what is considered as the 'Principal or present value' (P)?
In finance, what is considered as the 'Principal or present value' (P)?
What is 'Maturity/future value or compound amount' (A) in finance?
What is 'Maturity/future value or compound amount' (A) in finance?
What is an important characteristic of annuity payments?
What is an important characteristic of annuity payments?
'Payment interval' in an annuity refers to:
'Payment interval' in an annuity refers to:
'Present value' of an annuity in finance refers to:
'Present value' of an annuity in finance refers to:
Flashcards
Date of Receipt
Date of Receipt
The exact date funds are received by the borrower.
Simple Interest
Simple Interest
Interest only calculated on the original amount borrowed.
Compound Interest
Compound Interest
Interest is calculated on both the principal and accumulated interest.
Maturity Value
Maturity Value
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Principal
Principal
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Actual Number of Days
Actual Number of Days
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Approximate Number of Days
Approximate Number of Days
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Rate (r)
Rate (r)
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Effective Interest Rate
Effective Interest Rate
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Annuity
Annuity
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Payment Interval
Payment Interval
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Present Value of an Annuity
Present Value of an Annuity
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Maturity Value (A)
Maturity Value (A)
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Lender
Lender
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Lender's Role
Lender's Role
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Role of a Financial Intermediary
Role of a Financial Intermediary
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Study Notes
Lender's Role in Financial Transactions
- Facilitates financing by providing funds to borrowers.
- Evaluates borrower’s creditworthiness and determines terms of the loan.
Key Financial Terms
- Date of Receipt: Refers to the exact date funds are received by the borrower, known as the settlement date.
- Simple Interest: Interest calculated only on the principal amount, not on accumulated interest.
- Compound Interest: This refers to interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods.
Maturity and Future Value
- Maturity Value or Future Value: The total amount due to a lender at the end of a loan period, including both principal and interest.
Principal in Financial Transactions
- Principal (P): The original sum of money borrowed or invested, excluding any interest or additional charges.
Day Count Methods
- Actual Number of Days: Refers to the precise count of days between two dates for interest calculation.
- Approximate Number of Days: Utilizes a simplified, often uniform method for computing time periods, typically assuming a 30-day month.
Interest Rates and Effective Rates
- Rate (r): The percentage charged on the principal for borrowing money or earned on an investment, usually expressed annually.
- Effective Interest Rate: The actual interest rate on an investment or loan after compounding is taken into account, offering a true annual rate.
Annuities in Finance
- Key Requirement for Annuity: Regularity of payments made at equal intervals over a specified time frame.
- Payment Interval: Refers to the frequency at which annuity payments are made, such as monthly, quarterly, or annually.
Present and Future Value in Annuities
- Present Value of an Annuity: The current worth of a series of future payments, discounted at a specific interest rate.
- Maturity/Future Value or Compound Amount (A): The value of the annuity at its maturity date, including all payments and accrued interest.
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