Finite Math- Exam 1 Terms

Annuity Account

An account earning interest into which you make periodic deposits or from which you make periodic withdrawals

Amortization

The process of paying off a loan

Annuitization Phase

The period during which you are making withdrawals from your annuity account

Conversion Period

Interval of time between successive interest calculations

Accumulation Phase

The period during which you are contributing to your annuity account, during which the value of the account increases

Home Equity

The difference between the home’s value and the outstanding balance on the property

Simple Interest

Interest that is compounded on the original principal only

Balloon Payment

A repayment of the outstanding principal, made at the end of a loan period

ARM-Loan

A home loan in which the interest rate is changed periodically based on a financial index

Term

The time period of an investment

Effective Interest Rate

The annual rate of interest that, when compounded annually, will yield the same accumulated amount as the nominal rate compounded m times a year (over the same term). AKA annual percentage yield (APY).

Sinking Fund

An account that is set up for a specific purpose at some future date.

Accumulated Amount

The sum of the principal and interest after t years

Annuity

The sequence of deposits or withdrawals

Compound Interest

Interest that is periodically added to the principal and therefore earns interest at the same rate (i.e., you earn interest on both the principal and the previous interest earned)