Financial Chapter 4
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Financial Chapter 4
Chapter 4 Product Design and the Time Value of Money
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
The incidence of death in a specified group of people.
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
1/100th of a percent, or .0001
A system that simulates something else - in product design, a system that simulates an insurance or annuity product.
In product operations, a difference b/t actual & assumed product values that produces a decrease in actual product profitability relative to assumed product profitability.
In product operations - a difference b/t actual & assumed product values that produces an increase in actual product profitability relative to assumed product profitability.
The percentage by which an amount of money is multiplied to derive the amount that is paid for the use of that money.
The original amt of money upon which interest is calculated.
Interest that is applied only to the principal amt of an investment.
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.
For the purposes of financial analysis, any series of equal payments made at regular intervals over a specified period of time.
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 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.