# Financial Chapter 4

 The flashcards below were created by user Kathlaen on FreezingBlue Flashcards. Technical Product Design The phase in the product development process in which a product's financial structure is created. Also known as financial design or product design. Cost of Benefits For an ins or annuity product, the value of the contractually required benefits that the product promises to pay. AKA the cost of insurance. Mortality The incidence of death in a specified group of people. Interest Spread Represents the element of profit that insurers hope to earn from their investment operations; found by subtracting the interest-crediting rate from the interest rate earned. AKA interest margin. Basis Point 1/100th of a percent, or .0001 Model A system that simulates something else - in product design, a system that simulates an insurance or annuity product. Adverse Deviation In product operations, a difference b/t actual & assumed product values that produces a decrease in actual product profitability relative to assumed product profitability. Favorable Deviation In product operations - a difference b/t actual & assumed product values that produces an increase in actual product profitability relative to assumed product profitability. Interest Rate The percentage by which an amount of money is multiplied to derive the amount that is paid for the use of that money. Principal The original amt of money upon which interest is calculated. Simple Interest Interest that is applied only to the principal amt of an investment. Compound Interest Interest earned on both the principal and accumulated interest. Nominal Interest Rate The named interest rate for a particular investment. Effective Interest Rate The type of interest rate that includes the effects of compounding. Time Value of Money A concept which states that the value of a sum of money will change over time as a result of the effects of interest. Present Value (PV) For a sum of money, the amount that, if invested at a specified interest rate on a specified date, would grow to equal a specified future amount. Future Value (FV) For a sum of money, the amount that an original sum is expected to be worth at a specified future date, given a specified interest rate. Future Value Interest Factor (FVIF) The future value of \$1.00 at a given interest rate for a stated number of periods. Annuity For the purposes of financial analysis, any series of equal payments made at regular intervals over a specified period of time. Ordinary Annuity An annuity where the payments are made at the end of each payment period. Can make more money on an annuity due, because you get the \$ sooner & have longer to invest it. Annuity Due annuity where payments are made at the beginning of each payment period. more money to invest for longer Present Value Interest Factor (PVIF) The present value of \$1.00 discounted at a given interest rate for a stated number of periods. AuthorKathlaen ID120127 Card SetFinancial Chapter 4 DescriptionChapter 4 Product Design and the Time Value of Money Updated2011-12-02T19:45:26Z Show Answers