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Appendix A

QuestionAnswer
Interest is payment for the use of another party's money
Principal The amount borrowed or invested
Three elements 1. Principal 2. Interest rate 3. Time
Simple interest is computed on the principal amount only
Formula for Interest Principal X Rate X Time
Compound interest is computed on principal and on any interest earned that has not been paid or withdrawn
Future Value of a Signle Amount is the value at a future date of a given amount invested, assuming compound interest.
Formula for future value FV = p X (1+i) ^n
Annuity A series of equal dollar amounts to be paid or received at evenly spaced time intervals
Future value of an annuity is the sum of all payments (receipts)plus the accumulated compound interest on them)
Present value is the value now of a given amount to be paid or received in the future,
Three variables of present value 1. The dollar amount to be received (future amount). 2. The length of time until the amount is recieved (number of periods). 3. The interest rate (the discount rate).
Formula of Present Value (PV) Future Value(FV) ------------------------- ( 1+i)^n
Present value of an annuity is the value now of a series of future receipts or payments, discounted assuming compound interest
For computing the rpesent value of an annuity 1. the discount rate 2. the number of paymetns (Receipts) 3. The amount of the periodic receipts or paymetns
Bonds are priced using Present Values -> To calculate the price of a bond
To calculate BOnds 1) PV of the face AMount of the Bonds ( SIngle Amount) 2) And PV of the INterest PAyments (Equal Payments made over the life of the bond) 3) Then add those together
If interest is accruael yearly? Then n = years
If interest is accryed semiannually THen n = years X 2
If interst is accrued yearly then i = yearly rate
If the interest is ewarned semianally, theni = yearly rate /2
Created by: JackyThrows
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