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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