Math Test #1

Formulas A & B

Simple Interest (Interest computed on the original principal only)

Principal ($) (present value)

P

Interest rate / year

r

Number of years

t

Formula C

Compound interst, interest that is periodically added to the principal where it continues to earn interest. One-time deposit

r/m

i

m*t

n

A

Accumulated amount at the end of n conversion periods

Formulas D & E

Effective rate of change, comparing 2 banks

The effective rate of interest

The annual rate of interest that, when compounded annually, will yield the same accumulated amount as the nominal rate compounded m times per year (over the same time)

Formula F

Saving/building money up. Recurring deposits, acocunt is increasing

Formula G

Loans/paying debt down. Recurring withdrawals, account is decreasing.

Annuity account

An account earning interest into which you make periodic depostis or withdrawals

S

Future Value

R

Payment amount

Outstanding Principal

The remaining balance of a loan that hasn’t been paid yet

Balloon payment

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

Home Equity

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

Formula A

Formula for simple interest only

Formula B

Formula for accumulated amount on simple interest

Formula D

effective rate of interest dealing w/ number of conversions per year (m)

Formula E

Effective rate of interest formula for principal, accumulated amount, and time

ARM Loan (5/1 has an initial rate for the first 5 years, and is then adjusted every year for the remaining term of the loan. Flipped G, Normal G)

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