Module 2: Money-Time Relationships Vocabulary Flashcards

Vocabulary flashcards covering core terms and definitions from Module 2 on money-time relationships, including simple interest, compound interest, continuous compounding, and interest rates.

Time Value of Money (TVM)

The concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

Interest (Borrower's Viewpoint)

The amount of money paid for the use of borrowed capital.

Interest (Lender's Viewpoint)

The income produced by the money which has been lent.

Simple Interest

Interest on a loan or principal that is based only on the original amount of the loan or principal.

Principal

The amount of money borrowed and on which interest is charged.

Rate of Interest

The cost of borrowing money, or the amount earned by one unit of principal during a unit of time.

Ordinary Simple Interest

Simple interest based on a banker's year composed of $12$ months of $30\,\text{days}$ each, totaling $360\,\text{days}$ in a year.

Exact Simple Interest

Simple interest based on the exact number of days in a given year, using $365\,\text{days}$ for a normal year and $366\,\text{days}$ for a leap year.

Leap Year

A year containing $366\,\text{days}$ that occurs once every $4$ years, defined as years exactly divisible by $4$, excluding century years unless they are divisible by $400$.

Compound Interest

Interest earned where the interest calculated at the end of each period is added to the principal and earns interest for succeeding periods.

Single Payment Compound Amount Factor

The factor $(1 + i)^n$ used to determine total amount due for compound interest, designated as SPCAF.

Continuously Compounded Return

The return earned when interest on an investment is calculated and reinvested back into the account for an infinite number of periods.

Nominal Rate of Interest

The basic annual rate of interest that does not include any consideration of compounding.

Effective Rate of Interest

The actual or exact rate of interest earned on the principal during a one-year period.