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Econ Ch2
| Term | Definition |
|---|---|
| Loan Principal | the amount that was originally loaned from the bank |
| Compound Growth | investment gains earned in the first time period are put to work in the second time period to earn additional investment returns |
| Savings Deposit | the money you loaned to the savings institution that is protected against loss |
| Simple Interest | (Principle) X (Yearly Interest Rate) X (Number of years) |
| Annual Percentage Rate (APR) | the annual sum of the periodic interest rates applied to the account, without considering the effect of compound growth |
| Annual Percentage Yield (APY) | the annual sum of the periodic interest rates applied to the account, without considering the effect of compound growth |
| Rule of 72 | provides an estimate of how long it will take you to double your money (72/2) |
| Value of Money (TVM) | formulas and calculations that allow you to specifically consider financial goals in terms of money, time, and interest |
| Future Value of a Lump Sum | estimates how much currents savings and investments will be worth at a certain date in the future |
| Present Value of a Lump Sum | determines the current value of a future amount |
| Future Value of an Annuity | estimates how much you will have in the future if you save or invest a set dollar amount on a regular basis |
| Present Value of an Annuity | determines the current value of a regular series of equal payments occurring in the future. |
| Amortization or payment schedule | Calculates the payment you need to make on a car, home, education, or similar type of loan |
| Balance Sheet | a financial-management tool that tracks changes in assets, liabilities, and net worth |
| Assets | anything that you own |
| Liabilities | anything that you owe |
| Net Worth | assets minus liabilities |
| Liquidity | how quickly assets can be converted to cash without penalties or significant value reduction |
| Fair Market Value | the price someone would pay for to buy your asset |
| Appreciating Assets | assets that increase in value over time |
| Depreciating Assets | assets that decrease in value over time |
| Short-term liabilities | liabilities that should be paid of within a year |
| Long-term liabilities | liabilities that have a longer repayment schedule |
| Good Debt | a loan solely to invest in a need (like a house) or human capital that can further increase future wealth |
| Bad Debt | a loan that is used quickly or immediately goes down in value |
| Budget | an essential resource-management tool that tracks where your money comes from and where your money goes |
| Income and Expense Statement | a document that shows the amount of money earned and the money spent |
| Cash-flow Statement | includes income and expenses, but also includes withdrawals from savings, loan proceeds, and other transfers of money |
| Fixed expenses | expenses that are difficult to change over short periods of time and must be paid |
| Variable expenses | expenses that fluctuate from month to month and are easier to reduce |
| Projection | a column in a budget that shows the estimated amount of money that will be spent |
| Gross Income | income earned before taxes or other deductions |
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