GenMath Simple and Compounding PDF

Summary

This document explains the basic concepts of simple and compound interest, including key terminology like principal, rate, interest, maturity date, and future value and other financial concepts and calculations. It likely serves as learning material for a finance course or similar educational setting.

Full Transcript

GenMath: Simple and Compounding i) ORIGIN/Loan Date INTEREST – TERMINOLOGIES - Date on which money is received by the borrower. a) PRINCIPAL (P) - The amount of money borrowed or...

GenMath: Simple and Compounding i) ORIGIN/Loan Date INTEREST – TERMINOLOGIES - Date on which money is received by the borrower. a) PRINCIPAL (P) - The amount of money borrowed or invested on the origin date. j) Repayment/MATURITY DATE - Date on which the money borrowed or loaned is to be completely repaid. b) RATE (R) - Annual rate, usually in percent, charged by the lender, or rate of increase of the k) TIME/Term investment. - Amount of time in years the money is borrowed or invested: ‘Length of Time’ between the origin and maturity date. c) INTEREST (I) - Amount paid or earned for the use of money. l) FREQUENCY OF CONVERSION (m) - Number of conversion period in one year. d) Maturity/FUTURE VALUE (Fv) Annual Semiannual Quarterly Monthly Daily - Amount after (t) years that the lender Frequency receives from the borrower on the of 1 2 4 12 365 maturity date. Conversion (m) e) SIMPLE INTEREST (Is) FOR ANNUITY: - Interest that is computed on the principal. - Payment Interval (p) - The interest remains constant throughout Number of months before payment. the term. - Compound Interval (c) Number of months before interest is f) COMPOUND INTEREST (Ic) compounded. - The interest computed on the principal and also on the accumulated past interest. Annual Semiannual Quarterly Monthly Daily Frequency of 1 2 4 12 365 g) LENDER/Creditor Conversion - Person (or institute) to whom money is (m) owed. Payment Interval (p) 12 6 3 1 Compound h) BORROWER/Debtor Interval (c) 12 6 3 1 - Person (or institute) who owes the money or avails of the funds from the lender GenMath: Simple and Compounding g) PRESENT VALUE of an Annuity (P) ANNUITY – TERMINOLOGIES - The sum of the present values of all payments to be made during the entire a) ANNUITY term of the annuity. - A sequence of payments made at equal (fixed intervals) or periods of time. h) Periodic/REGULAR PAYMENT (R) - Examples: - Each payment in an annuity. Rental Payment Monthly Pensions Monthly payment for loan Educational Plan CLASSIFICATIONS OF ANNUITY 1.) Simple Annuity - Where the payment intervals are the b) ANNUITY PAYMENT same as the interest period. - The payment for each period is fixed and the compound interest rate is also 2.) General Annuity fixed over a specified time. - Where the payment intervals are not the same as the interest period. c) Periodic/REGULAR PAYMENT (R) 3.) Ordinary Annuity (or Annuity - Each payment in an annuity. Immediate) d) PAYMENT INTERVAL - A type of annuity in which the - The time between the successive payments are made at the end of payment dates of an annuity. each payment interval. 4.) Annuity Certain e) TERM OF ANNUITY - An annuity in which payments begin - The time between the first payment and end at definite times. interval and the last payment interval. 5.) Contingent Annuity - An annuity in which the payments f) FUTURE VALUE (F)/Amount of an extend over an indefinite (or Annuity indeterminate) length of time. - The sum of the future values of all payments to be made during the entire term of the annuity GenMath: STOCKS - Also called “Current Stock Yield.” STOCKS 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑝𝑒𝑟 𝑆ℎ𝑎𝑟𝑒 𝑆𝑡𝑜𝑐𝑘 𝑌𝑖𝑒𝑙𝑑 𝑅𝑎𝑡𝑖𝑜 = - An investment that signifies ownership 𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 in a corporation and represents a claim on a share of a corporation’s assets and profits. 6.) Par Value (for Stocks) - Stocks are typically riskier and long- - The ‘per share’ amount as stated on term investments. the company certificate. Unlike the market value, it is determined by the company and remains stable TERMINOLOGIES (STOCKS) over time. 1.) Dividends (Dvd): - These are the shares in a company’s profit. Companies that issue bonds and stocks give dividends to their investors. 7.) Face Value (for Bonds) - The amount payable on the bond’s maturity date (F). 𝐷𝑣𝑑 = (𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 %) × (𝑃𝑎𝑟 𝑉𝑎𝑙𝑢𝑒) × (𝑁𝑜. 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠) m) PYRAMID METHOD: 2.) Dividend per Share (DpS): - The ratio of the dividends to the number of shares of a stock or bondholder. Dvd Dividend 𝐶𝑜𝑚𝑝𝑎𝑛𝑦 ′ 𝑠 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝐷𝑝𝑆 = 𝑇𝑜𝑡𝑎𝑙 𝑛𝑜. 𝑜𝑓 𝐶𝑜𝑚𝑝𝑎𝑛𝑦 ′ 𝑠 𝑆ℎ𝑎𝑟𝑒𝑠 % Pv S Dividend Par Value No. of Shares Percentage 3.) Stock Market - The place where stocks can be bought. - Sample Problem: - The Philippine Stock Exchange (PSE) is a prominent stock exchange holder in the country. Dividend % Par Value Shares Dividend 4.) Market Value - The current price of the stock at which 1 5% ₱700 200 _______ can be sold in the stock market. 2 _______ ₱500 50 ₱12,000 - Prices may vary at almost every time. 3 3% _______ 100 ₱3,000 4 7.5% ₱350 _______ ₱5,000 5.) Stock Yield Ratio: - Ratio of the annual dividend per share and the market value per share. - Solution: GenMath: BONDS BONDS - Issued by the Government or Financial Institutions. - They benefit from interests. - These are another word for “Utang”/Debt. TERMINOLOGIES (BONDS) 1.) Coupon - The annual interest paid by the issuer to the lender (bondholder) on the bond is referred to as the coupon. 2.) Maturity - The date when the bond’s principal amount is repaid. - Answers: 3.) Coupon Rate Dividend % Par Value Shares Dividend - The annual payout as the percentage 1 5% ₱700 200 ₱7,000 of the bond’s par value. 2 48% ₱500 50 ₱12,000 3 3% ₱1,000 100 ₱3,000 4.) Bondholder 4 7.5% ₱350 190.48 ₱5,000 - The one who holds a corporation or government bond. GenMath: LOANS LOAN CONSUMER - A financial obligation of paying - A person who purchases goods and someone a certain amount for the use services for personal use. of his or her money. CONSUMER LOAN BUSINESS - It is money lent to an individual for - The practice of making one’s living personal or family purposes. by engaging in commerce. - Consumer loan includes: Credit Cards; Mortgages; BUSINESS LOAN Home Equity Lines of Credit; - It is money lent specifically for a Refinances; business purpose. It may be used to Auto Loans; as well as start a business or to have a business Personal Loans. expansion. - The business loan includes: Microloans; Invoice Financing; Mezzanine Financing; Bank Loans; Asset-Based Financing; Cash Flow Loans; as well as Business Cash Advances.

Use Quizgecko on...
Browser
Browser