GENMATH Future and Present value of Simple Annuity

Annuity

-is a sum of money that is paid in regular equal payments.

Payment Interval

-It is the period of time between consecutive payments

Term/Time

-It is the _____ from the beginning of the first payment interval to the end of the last payment interval.

annuity certain

-is an annuity payable for a definite duration.
-It means that this annuity begins and ends on a definite date.

perpetuity

-is an annuity payable over a term that has a definite start date but no definite end date.

simple annuity

-an annuity certain whose compounding period is the same as the payment interval.

Future Value

-This refers to the total payments and interest earned at a certain date in the future.

Present Value of an Annuity

-This is the current value of the future payments from an annuity, given its rate.

Lender or creditor

refers to the party lending money or extending credit.

Borrower or debtor,

refers to the party using the money or credit, which expects future expenses at the cost of using it.

Principal

refers to the amount of money extended for credit or the amount of money deposited in a bank for safekeeping.

Interest rate

refers to the charged amount for using the money over a certain period. It is commonly expressed in percent but is converted to decimal.

Time

refers to the period covered from the time that the money (principal) is borrowed until its due date. The due date of the payment of the principal is known as the maturity date.

Simple interest

refers to an interest that is computed on the original principal during the whole period or time of borrowing.

Compound interest

-refers to the sum of interest of prior period computed on the original or principal amount and each of the successive periods on both the principal and the interest.

period

-is a time interval it takes for the money to be converted or to earn interest in a year.

Nominal rate

refers to the rate of borrowing and is quoted as an annual interest rate.

Periodic rate

-is called the interest rate per compounding period. It is equal to the nominal rate divided by the compounding period in a year.

Compound amount

-is the accumulated value of the principal and all interest amounts of prior periods.

Maturity value or amount

-refers to the sum of the principal and interest.