Financial Mathematics I (CFI 1101) Vocabulary Flashcards

Vocabulary and key financial concepts from the Part I 1st Semester Supplementary Examination paper in Financial Mathematics I (CFI 1101).

Nominal Rate of Interest

The stated annual interest rate that does not account for the effects of intra-year compounding periods.

Effective Rate of Interest

The actual annual yield earned or interest rate paid after accounting for the compounding of interest over specified periods within a year.

Continuous Compounding

A compounding method where interest is compounded infinitely many times per year, with nominal yield $r$ satisfying $e^r - 1 = \text{effective yield}$.

Negotiable Certificate of Deposit (NCD)

A short-term financial money market instrument with a specified face value, coupon rate, and maturity duration that can be traded prior to maturity at a price based on prevailing yield to maturity.

Yield to Maturity (YTM)

The annualized discount rate that equates the purchase price of a debt security with the present value of its remaining cash flows.

Realized Yield

The actual overall rate of return achieved on an investment measured over a specific holding period (to the Horizon Date).

Annuity Due

A series of equal periodic payments made in advance at the beginning of each payment period.

Present Value of an Annuity Due Formula

The present value of an annuity due of $\$1.00$ expressed as $\frac{(1+i)[(1+i)^n - 1]}{i(1+i)^n}$, where $i$ is the nominal interest rate per period and $n$ is the number of periods.

Grace Period

A specified delay period prior to the start of regular annuity payments, during which interest may still accumulate.

Loan Amortization Schedule

A period-by-period table breaking down each loan repayment into interest paid, principal paid, and the outstanding loan principal balance.

Buyer's Equity

The portion of a mortgaged property's total value that represents the buyer's ownership, comprising the initial deposit plus accumulated principal repayments.

Seller's Equity

The remaining unamortized principal balance of a mortgage loan owed to the seller or lending institution.

Plant Replacement Fund

A sinking fund designed to accumulate capital at compound interest to meet the inflation-adjusted replacement cost of a plant at the end of its economic life.

Opportunity Cost of Capital

The annual rate of return foregone by committing capital to a specific project instead of an alternative investment with equivalent risk.

True Economic Profit

The net income derived after subtracting both explicit cash operating expenses and implicit opportunity costs of capital from total revenue.

Internal Rate of Return (IRR)

The discount rate that sets the net present value (NPV) of a project's projected cash flow streams equal to zero.