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amortized loan
a loan that has identical payments throughout the contract. payments are applied first towards reducing the interest balance and any remaining sum towards the principal balance. consequently, the proportion of each payment that pays interest decreases while the proportion applied to the principal increases throughout the loan
annuity
a finite stream of recurring payments that are paid or received at regular intervals, they are offered as ordinary, dues, and growing
annuity due
a finite stream of identical recurring payments whose payments occur at the beginning of each period, rent and lease payments are examples
closing costs
expenses such as origination fees, appraisal fees, title searches, surveys, recording fees, and more that parties incur in a real estate transaction. typically, these run 2% to 5% of the purchase price, and whether the buyer or seller pays them is negotiable
consistent
in TVM calculations involving the annuity formulae, you must define both the payment frequency and the periodic rate over the same unit of time. start with the payment, then determine the rate
exchange-traded fund (ETF)
a security that operates much like a mutual fund but can be bought and sold on a stock market just as company shares do. they can track a particular portfolio, commodity, or industry, to name a few. the SPDR S&P 500 (NSDQ: SPY) was the first one and remains very popular today
growing annuity
an annuity whose payments increase increase at a constant percentage each period forever
prowing perpetuity
a perpetuity whose payments increase by a constant percentage each period forever
lease
a contract that allows a party to temporarily rent an asset for a fixed period under a set of pre-specified conditions. it can differ from rent in the case of large capital assets because generally accepted accounting principles may require the lessor (renter) to book the asset and the lease on its balance sheet
level perpetuity or perpetuity
an infinite stream of regularly paid identical cash flows
loan amortization schedule
a payment-by-payment table that shows the beginning balance, interest, and principal paid per payment, and the resulting ending balance for an amortized loan, such as a mortgage or car loan
ordinary annuity
a finite stream of identical recurring payments whose payments occur at the end of each period. car loans and mortgages are examples. often, when people say “annuity,” this is what they mean
