exam 2
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effective yield
the rate of intrest the bondholder actually earns on a bond. If sold at discount it exceeds the stated rate, if sold at a premium it is lower than the stated rate

future value of an annuity
the accumualted total that results from a series of equal deposits invested at compound intrest

face rate (nominal/stated rate)
the annual interest rate stated on a financial instrument.

stated rate (face/ nominal rate)
the annual intrest rate stated on a financial instrument

ordinary annuity
an annuity in which each rent is payable/ receivable at the end of the period

simple intrest
intrest on principla only regardless of intrest that may ahve occured in past periods

principla
the amount borrowed or invested

dicounting
the process of reducing the amount or values of cash flows from the future to the present, making the present value less than the future amount

future value
value at a later date of a single sum that is invested at compound intrest

deferred annuity
an annuity in which the rents begin after a specific number of periods

effective intrest method
the preferred procedure for computing the amortization of a discount or premium.

nominal rate (face/ stated rate)
the annual intrest rate stated on a financial instrument

risk free rate of return
the pure rate of return plus the expected inflation rate. typically meassured by the return on a low risk security

expected cash flow approach
method of caluculating present value that uses a range of cash flows and incorporates the probability of those cash flows to provide as accurate as apossible measure of expected future cash flows

time value of money
the relationship between time and money

compound intrest
intrest that accrues on both the principal and the intrest earned in past periods

annuity due
an annuity in which each rent is payable/ receivable at the beginning of the period

annuity
a series of payments or receipts that occur at equal intervals

interest
payment for the use of someone else's money. it is the excess cash received/ repaid over and above the amount lent/ borrowed

present value
the value at an earlier date of a given future sum discounted at compound intrest