Podcast
Questions and Answers
What is the semi-annual interest payment for a PHP100,000 bond with a stated rate of 10%?
What is the semi-annual interest payment for a PHP100,000 bond with a stated rate of 10%?
- PHP2,500
- PHP10,000
- PHP5,000 (correct)
- PHP12,000
What happens to the price of a bond when the required rate of return is lower than the stated rate?
What happens to the price of a bond when the required rate of return is lower than the stated rate?
- The bond is issued at a premium. (correct)
- The bond is issued below its face value.
- The bond is issued at par.
- The bond's price is unaffected.
What is the discount rate used to calculate the price of a bond with an effective rate of 12% paid semi-annually?
What is the discount rate used to calculate the price of a bond with an effective rate of 12% paid semi-annually?
- 6% (correct)
- 12%
- 4%
- 10%
In the bond pricing example, what is the total price of the bond calculated with a $100,000$ face value at a $12\%$ effective rate?
In the bond pricing example, what is the total price of the bond calculated with a $100,000$ face value at a $12\%$ effective rate?
What distinguishes an amortization schedule from a standard payment schedule?
What distinguishes an amortization schedule from a standard payment schedule?
What does the opportunity cost refer to?
What does the opportunity cost refer to?
What is the significance of the time value of money?
What is the significance of the time value of money?
What does the variable 𝐴 in the amortization formula represent?
What does the variable 𝐴 in the amortization formula represent?
How is the simple interest calculated according to the formula?
How is the simple interest calculated according to the formula?
In the amortization formula, what does the variable 𝑃 denote?
In the amortization formula, what does the variable 𝑃 denote?
When computing the maturity amount, which formula is appropriate?
When computing the maturity amount, which formula is appropriate?
If the interest per payment period is 6%, what is the value of 𝑖 in the formula?
If the interest per payment period is 6%, what is the value of 𝑖 in the formula?
What must be adjusted when using the interest and time formulas?
What must be adjusted when using the interest and time formulas?
What is compound interest?
What is compound interest?
How is the amortization of the discount calculated in the first period?
How is the amortization of the discount calculated in the first period?
What is the carrying amount at the end of the third period?
What is the carrying amount at the end of the third period?
Which option correctly represents the formula for finding the principal from simple interest?
Which option correctly represents the formula for finding the principal from simple interest?
Which value represents the total number of payments (𝑛) in the amortization example provided?
Which value represents the total number of payments (𝑛) in the amortization example provided?
If an individual decides to save money, what does he/she give up?
If an individual decides to save money, what does he/she give up?
What is the face value of the example presented?
What is the face value of the example presented?
What is the effective interest rate used for the computation in the example?
What is the effective interest rate used for the computation in the example?
What amount must you invest now to receive PHP25,000 in 2 years at an interest rate of 6% per annum?
What amount must you invest now to receive PHP25,000 in 2 years at an interest rate of 6% per annum?
In an amortized loan, what typically happens to the distribution of payment towards interest and principal over time?
In an amortized loan, what typically happens to the distribution of payment towards interest and principal over time?
Which of the following types of loans is NOT classified as an amortized loan?
Which of the following types of loans is NOT classified as an amortized loan?
What is the main purpose of a loan amortization schedule?
What is the main purpose of a loan amortization schedule?
How does the time value of money affect the present value of a bond to be redeemed in a year?
How does the time value of money affect the present value of a bond to be redeemed in a year?
What happens to the interest cost at the beginning of an amortized loan?
What happens to the interest cost at the beginning of an amortized loan?
To achieve a future value of PHP100,000 at the end of one year, what financial concept is used to determine the required investment today?
To achieve a future value of PHP100,000 at the end of one year, what financial concept is used to determine the required investment today?
What does it mean when bonds are traded through the Philippine Dealing and Exchange System?
What does it mean when bonds are traded through the Philippine Dealing and Exchange System?
What will be the future value of an investment of P10,000 at an interest rate of 3% compounded annually after 2 years?
What will be the future value of an investment of P10,000 at an interest rate of 3% compounded annually after 2 years?
What is the present value required today to obtain P25,000 in 2 years at an interest rate of 3%?
What is the present value required today to obtain P25,000 in 2 years at an interest rate of 3%?
After how many years will P10,000 grow to approximately P11,592.74 at a 3% annual interest rate?
After how many years will P10,000 grow to approximately P11,592.74 at a 3% annual interest rate?
If the interest earned in the first year is P300, what is the principal amount at the start of the second year?
If the interest earned in the first year is P300, what is the principal amount at the start of the second year?
What is the amount of interest earned in the second year if the principal at the start of that year is P10,300 with an interest rate of 3%?
What is the amount of interest earned in the second year if the principal at the start of that year is P10,300 with an interest rate of 3%?
In Year 4, what will be the total amount (principal + interest) at a 3% interest rate if the previous total amount was P10,927.27?
In Year 4, what will be the total amount (principal + interest) at a 3% interest rate if the previous total amount was P10,927.27?
Which of the following values represent the future value at the end of Year 3 if the previous year's amount was P10,609.00?
Which of the following values represent the future value at the end of Year 3 if the previous year's amount was P10,609.00?
What is the main factor influencing people's decision to spend money now instead of saving it for the future?
What is the main factor influencing people's decision to spend money now instead of saving it for the future?
What is the present value of receiving PHP100,000 in one year at an interest rate of 10%?
What is the present value of receiving PHP100,000 in one year at an interest rate of 10%?
What is the total present value of receiving PHP10,000 annually for three years at an interest rate of 10%?
What is the total present value of receiving PHP10,000 annually for three years at an interest rate of 10%?
What is the price of a bond with a face value of PHP100,000 that pays 10% interest annually and matures in 3 years?
What is the price of a bond with a face value of PHP100,000 that pays 10% interest annually and matures in 3 years?
When bonds are issued at a discount, what does it indicate about the required rate of return?
When bonds are issued at a discount, what does it indicate about the required rate of return?
Which formula should be used to find the present value of PHP100,000 due in two years at an interest rate of 10%?
Which formula should be used to find the present value of PHP100,000 due in two years at an interest rate of 10%?
What will happen to the present value of bond payments if the interest rate increases?
What will happen to the present value of bond payments if the interest rate increases?
What is the present value of the face value of a bond with PHP100,000 that matures in 3 years at 10%?
What is the present value of the face value of a bond with PHP100,000 that matures in 3 years at 10%?
Which of the following describes a scenario in which bond interest payments are made semi-annually?
Which of the following describes a scenario in which bond interest payments are made semi-annually?
Flashcards
Opportunity Cost
Opportunity Cost
The value of an item or service in terms of what you give up to obtain it. For example, choosing to save for a new phone means giving up weekend dining.
Time Value of Money
Time Value of Money
The concept that money today is worth more than the same amount of money in the future due to its potential to earn interest.
Interest
Interest
The amount paid for using money, often expressed as a percentage of the principal.
Compound Interest
Compound Interest
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Maturity Amount
Maturity Amount
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Principal
Principal
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Time Period (T)
Time Period (T)
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Interest Rate (r)
Interest Rate (r)
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Future Value (FV)
Future Value (FV)
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Present Value (PV)
Present Value (PV)
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Future Value Formula
Future Value Formula
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Principal (PV)
Principal (PV)
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Discounting
Discounting
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Compounding
Compounding
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Bond issued at a discount
Bond issued at a discount
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Bond issued at a premium
Bond issued at a premium
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Stated Interest Rate
Stated Interest Rate
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Effective Rate of Return
Effective Rate of Return
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Amortization Schedule
Amortization Schedule
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Present Value
Present Value
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Future Value
Future Value
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Face Value of a Bond
Face Value of a Bond
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Annuity Payments
Annuity Payments
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Required Rate of Return
Required Rate of Return
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Nominal Rate of Return
Nominal Rate of Return
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Discount Bond
Discount Bond
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Price of a Bond
Price of a Bond
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Loan Amortization
Loan Amortization
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Loan Balance
Loan Balance
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Interest Costs
Interest Costs
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Loan Principal
Loan Principal
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Total Loan Payment
Total Loan Payment
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Loan Amortization Schedule
Loan Amortization Schedule
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Present Value of Bond
Present Value of Bond
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Amortization Payment
Amortization Payment
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Interest per Payment Period (i)
Interest per Payment Period (i)
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Total Number of Payments (n)
Total Number of Payments (n)
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Amortization Payment Formula
Amortization Payment Formula
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Amortization
Amortization
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Interest Expense
Interest Expense
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Carrying Balance
Carrying Balance
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Study Notes
Time Value of Money Concepts
- People make financial decisions where they give up something for something else.
- The opportunity cost is what is given up.
- Money today is worth more than the same amount in the future. This is due to potential earning of interest.
- Money is a limited resource; one cannot save and spend simultaneously. If saving is chosen, spending is forgone.
Interest Formula
- Interest = Principal × Rate × Time (I = PRT)
- Variations of this formula can be used to find principal (P), rate (r), or time (T).
Compound Interest
- Interest earned in one period is added to the principal, forming the basis for the next period's interest calculation.
- The compounding frequency (m) affects the final amount.
- The formula for maturity amount accounts for compounding: A = P(1 + rt)
Future Value and Present Value
- Future value reflects the worth of money in the future given interest.
- A peso today can be worth more in the future due to opportunity cost and inflation.
- Formula for Future Value: FV = PV(1 + i)t (where FV is future value, PV is present value, i is interest rate, and t is number of periods)
Loan Amortization
- A loan involves lending money at an interest rate for a set period.
- Loans are often secured from financial institutions (e.g., banks).
- Bonds are a form of loan that can be traded through exchanges.
- Amortization involves equal payments to repay a loan, partly for interest and partly for principal.
- Loan payments initially have higher interest components, reducing as the loan progresses.
Bond Pricing
- Bonds are usually priced with regular interest payments.
- Bonds can be issued at a discount (price less than face value) or premium (price more than face value) based the relationship between required rate of return and stated rate.
- The present value concepts are applicable to determining bond price.
- Amortization tables show the details of interest and principal repayment for a set period.
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