GenMath: Interest Terminologies
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Questions and Answers

What term describes the person or institution that receives payments owed for borrowed funds?

  • Lender (correct)
  • Debtor
  • Creditor (correct)
  • Borrower

What is the main characteristic of a Simple Annuity?

  • Payment intervals vary from the interest period
  • Payment intervals match the interest period (correct)
  • Interest rate changes periodically
  • Payments are made at irregular intervals

Which of the following best defines an annuity?

  • A single payment made at any time
  • A financial instrument for high-risk investments
  • A sequence of payments made at equal intervals (correct)
  • A sequence of irregular payments made over time

What does the term Present Value of an Annuity refer to?

<p>The sum of the present values of all payments to be made (C)</p> Signup and view all the answers

What is an Ordinary Annuity?

<p>An annuity with fixed payments made at the end of each period (B)</p> Signup and view all the answers

What is meant by a Periodic/Regular Payment in the context of an annuity?

<p>Each payment made during the term of the annuity (B)</p> Signup and view all the answers

What distinguishes a General Annuity from a Simple Annuity?

<p>Payments occur at different intervals than the interest period (B)</p> Signup and view all the answers

Which of the following describes the payment interval in a Daily compounding frequency?

<p>365 payments per year (D)</p> Signup and view all the answers

What is represented by the coupon rate in relation to bonds?

<p>The interest paid on the bond expressed as a percentage of its face value (C)</p> Signup and view all the answers

Which of the following best describes a bondholder?

<p>One who holds a bond issued by a corporation or government (B)</p> Signup and view all the answers

What is the main purpose of a business loan?

<p>To fund business activities such as starting or expanding a business (B)</p> Signup and view all the answers

Which of the following is NOT a type of consumer loan?

<p>Microloans (C)</p> Signup and view all the answers

What is maturity in the context of bonds?

<p>The date when the bond's principal amount is repaid (A)</p> Signup and view all the answers

What is the term used for the amount of money borrowed or invested on the origin date?

<p>Principal (B)</p> Signup and view all the answers

Which type of interest remains constant throughout the term?

<p>Simple Interest (A)</p> Signup and view all the answers

What does the maturity or future value represent?

<p>Amount received on the maturity date (D)</p> Signup and view all the answers

Which of the following describes 'Rate' in financial terms?

<p>Annual percent charged by the lender (C)</p> Signup and view all the answers

What is meant by 'frequency of conversion' in the context of interest?

<p>Number of times interest is compounded in a year (D)</p> Signup and view all the answers

Which of the following best describes compound interest?

<p>Interest calculated on both the principal and previously accrued interest (C)</p> Signup and view all the answers

What is the time or term in financial terms?

<p>Length of time the money is borrowed or invested (B)</p> Signup and view all the answers

What does the repayment or maturity date signify?

<p>Date by which the loan must be fully repaid (A)</p> Signup and view all the answers

What does the Dividend per Share (DpS) represent?

<p>The ratio of the dividends to the number of shares (B)</p> Signup and view all the answers

Which of the following best describes the Stock Market?

<p>A marketplace where stocks are traded (B)</p> Signup and view all the answers

What is indicated by the Market Value of a stock?

<p>The price at which the stock is currently sold (D)</p> Signup and view all the answers

How is the Stock Yield Ratio calculated?

<p>Annual dividend per share divided by market value per share (A)</p> Signup and view all the answers

What does a coupon refer to in the context of bonds?

<p>The annual interest paid by the issuer (B)</p> Signup and view all the answers

What is the primary benefit of holding bonds?

<p>Regular interest payments (A)</p> Signup and view all the answers

In stock trading, what often causes prices to vary?

<p>Investor behavior and market demand (C)</p> Signup and view all the answers

Which statement about dividends is false?

<p>Dividends are always consistent year over year (D)</p> Signup and view all the answers

What defines an Immediate Annuity?

<p>Payments are made at the end of each payment interval. (B)</p> Signup and view all the answers

Which term describes the time between the first and last payment of an annuity?

<p>Term of Annuity (C)</p> Signup and view all the answers

What is the Future Value of an Annuity?

<p>The total value of all future payments made. (B)</p> Signup and view all the answers

What does the Stock Yield Ratio measure?

<p>Dividends received per share in relation to market value. (C)</p> Signup and view all the answers

Which definition best describes Par Value for Stocks?

<p>The stable amount as stated on the company certificate. (B)</p> Signup and view all the answers

What are Dividends in the context of stocks?

<p>The shares in a company’s profit distributed to investors. (A)</p> Signup and view all the answers

What is the Face Value of a bond?

<p>The stated per value amount on the bond's certificate. (A)</p> Signup and view all the answers

Which type of annuity has payments extending over an indefinite length of time?

<p>Contingent Annuity (D)</p> Signup and view all the answers

Flashcards

Principal (P)

The initial amount of money borrowed or invested.

Interest (I)

The fee paid for borrowing or the gain from investing money.

Simple Interest

Interest calculated only on the principal amount.

Compound Interest

Interest calculated on both the principal and the accumulated past interest.

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Rate (R)

The percentage of interest charged per year.

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Maturity/Future Value (Fv)

The total amount received (or owed) at the end of the loan term.

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Time/Term

The length of time the money is borrowed or invested.

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Frequency of Conversion

Number of times interest is calculated and added to the principal in a year.

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Annuity

A series of equal payments made at regular intervals for a specific period of time.

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Ordinary Annuity

An annuity where payments are made at the end of each payment interval.

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Annuity Due

An annuity where payments are made at the beginning of each payment interval.

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Payment Interval

The time between successive payment dates in an annuity.

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Term of an Annuity

The total time between the first payment and the last payment interval.

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Future Value (FV) of an Annuity

The total amount of all payments and accumulated interest at the end of the annuity term.

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Stock

A type of investment signifying ownership in a corporation, providing a claim on a portion of the company's assets and profits.

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Dividend

A share of a company's profits distributed to shareholders.

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Annuity Payment

The fixed payment made each period during the annuity's term.

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Lender/Creditor

The person or institution who lends money.

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Borrower/Debtor

The person or institution who borrows money.

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Simple Annuity

Annuity with payment intervals the same as the interest period.

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General Annuity

Annuity with payment intervals NOT the same as the interest period.

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Present Value of an Annuity

The sum of the present values of all payments made over the entire annuity term.

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Bond Maturity

The date when the bond's principal amount is repaid. This is the date the bondholder receives the original amount invested.

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Coupon Rate

The annual payout of a bond as a percentage of its par value. This is the interest rate the bondholder receives.

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Bondholder

The individual or entity who owns a corporation or government bond. This is the person who receives the coupon payments and the principal at maturity.

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Business Loan

Money specifically lent for business purposes, used for starting or expanding a business. It helps companies fund operations, growth, or new ventures.

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Consumer Loan

Money lent to individuals for personal or family needs, like buying a car or a house. It helps people finance large personal expenses.

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Dividend per Share (DpS)

The amount of dividend paid out for each share of stock held by a shareholder.

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Stock Market

A marketplace where stocks are bought and sold.

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Market Value

The current selling price of a stock in the stock market.

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Stock Yield Ratio

A measure of the annual dividend per share relative to the stock's market price.

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Bonds

Debt securities issued by governments or corporations to raise funds.

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Coupon

The annual interest payment made by the issuer to the bondholder.

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Par Value

The face value of a bond, which is the amount the issuer will repay at maturity.

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Maturity

The date when the bond issuer repays the par value to the bondholder.

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Study Notes

GenMath: Interest - Terminologies

  • Principal (P): The initial amount borrowed or invested.
  • Origin/Loan Date: The date the borrower receives the money.
  • Repayment/Maturity Date: The date the borrowed money is repaid in full.
  • Rate (R): The annual interest rate charged by the lender.
  • Time/Term: The length of time the money is borrowed or invested, measured in years, between the origin and maturity dates.
  • Interest (I): The amount paid or earned for the use of money.
  • Frequency of Conversion (m): The number of times interest is compounded in a year (e.g., Annual, Semiannual, Quarterly, Monthly, Daily).
  • Maturity/Future Value (Fv): The total amount the lender receives from the borrower at the maturity date.
  • Simple Interest (Is): Interest calculated only on the principal amount. The interest remains constant throughout the loan term.
  • Compound Interest (Ic): Interest calculated on the principal and on the accumulated interest from previous periods.
  • Lender/Creditor: The party who lends the money.
  • Borrower/Debtor: The party who borrows the money.

GenMath: Annuity - Terminologies

  • Annuity: A sequence of payments made at equal intervals.
  • Examples: Rental payments, monthly pensions, monthly loan payments.
  • Annuity Payment: A fixed amount paid at each period.
  • Payment Interval: The time between successive payments.
  • Term of Annuity: The time between the first and last payment intervals.
  • Present Value of an Annuity (P): The total sum of the present values of all payments throughout the entire term.
  • Periodic/Regular Payment (R): Each payment within an annuity.
  • Classifications of Annuity:
    • Simple Annuity: Payment intervals are the same as interest periods.
    • General Annuity: Payment intervals are different from interest periods.
    • Ordinary Annuity: Payments are made at the end of each payment interval.
    • Annuity Certain: Payments begin and end at set times.
    • Contingent Annuity: Payments extend for an unspecified time.
  • Future Value (F)/Amount_of an Annuity: The total sum of the future values of all payments to be made during the entire term.

GenMath: Stocks

  • Stocks: Represent ownership in a company and a claim on its assets and profits.
  • Dividends (Dvd): Shares in a company's profits distributed to investors.
  • Dividend per Share (DpS): The ratio of dividends to the number of shares.
  • Stock Market: A place where stocks can be bought and sold.
  • Market Value: The current price of the stock.
  • Stock Yield Ratio: The ratio of annual dividend per share to market value per share.
  • Par Value: A stated value per share established by the company, unlike the market value which changes daily.
  • Face Value: The amount payable on the bond's maturity date

GenMath: Bonds

  • Bonds: Debt instruments issued by governments or financial institutions.
  • Coupon: The annual interest paid to the bondholder.
  • Maturity: The date when the principal amount is repaid.
  • Coupon Rate: The percentage of the bond's par value paid as interest annually.
  • Bondholder: The person or entity who holds the bond.

GenMath: Loans

  • Loans: Financial obligations to repay borrowed money.
  • Consumer Loans: Used for personal purchases. Examples: credit cards, mortgages, auto loans.
  • Business Loans: Used for business purposes. Examples: microloans, invoice financing, mezzanine financing, bank loans.
  • Collateral: An asset used to secure a loan.
  • Guarantor: A person who promises to repay a loan if the borrower defaults.
  • Loan Documents: Required for processing a loan, Including documents like credit reports, income tax returns.
  • Term of the Loan: The duration of the loan.
  • Interest Rate: The rate charged for borrowing money.

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Test your understanding of key terminologies related to interest in finance. This quiz covers concepts like principal, rate, and compound interest, helping you grasp the essentials of borrowing and investing. Dive in to solidify your knowledge of interest calculations.

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