General Mathematics Lesson 1: Simple Interest

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Questions and Answers

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?

Principal (P)

Time or term (t)

Origin or loan date (correct)

Repayment date or maturity date

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?

Interest that is computed from the principal and on the accumulated past interests Signup and view all the answers

What is the 'Maturity value' or 'Future value' in a financial transaction?

Amount after t years that the lender receives from the borrower on the maturity date Signup and view all the answers

What is considered as Principal (P) in a financial transaction?

Amount of money borrowed or invested on the origin date Signup and view all the answers

In the context of finance, what is the difference between 'actual number of days' and 'approximate number of days'?

Actual number of days includes leap year, while approximate number of days assumes 30 days in each month. Signup and view all the answers

What is the definition of 'Compound Interest' in the context of finance?

Interest that is computed from the principal and on the accumulated past interests. Signup and view all the answers

In the context of finance, what does 'Rate' (r) refer to?

The annual rate charged by the lender or the rate of increase of the investment. Signup and view all the answers

What is the 'Effective Interest Rate' in finance?

The actual rate of interest that takes effect in the loan/investment. Signup and view all the answers

What is a key requirement for an annuity in finance?

Continuous and equal payments at specified intervals. Signup and view all the answers

In finance, what is considered as the 'Principal or present value' (P)?

The amount of money borrowed or invested on the origin date. Signup and view all the answers

What is 'Maturity/future value or compound amount' (A) in finance?

The amount after t years that the lender receives from the borrower on the maturity date. Signup and view all the answers

What is an important characteristic of annuity payments?

'Continuous,' equal, and periodic payment intervals. Signup and view all the answers

'Payment interval' in an annuity refers to:

'Time between successive payments at equal (fixed) intervals.' Signup and view all the answers

'Present value' of an annuity in finance refers to:

'Sum of present values of all the payments to be made during the entire term of an annuity.' Signup and view all the answers

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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Description

This quiz covers the definition of terms related to simple interest, including lender, borrower, origin date, repayment date, and time or term. Test your understanding of these fundamental concepts in general mathematics.