Word Smart
interest
name V0
Principal
a constant amount that is subtracted from the value of an item at regular time intervals
flat-rate depreciation
How many weeks are in a year?
52
Loan or Investment for perpetuity
Investment
the money borrowed or invested
principal
Name D
Difference (Payment or Repayment for each period)
Depreciation is calculated based on units of use rather than time.
Unit-cost depreciation
1%
What is in common for the interest only loan and perpetuity?
The value of loan is always the same.
opposite of simple interest
compound interest
Name R
Ratio, usually you get it from the interest rate
A car is depreciated by the rate of 5% of original price a year. Is it a Flat-Rate Depreciation or Reducing-Balance Depreciation:
Flat-Rate Depreciation
If r is the yearly interest rate, state the formula for the R (ratio) when it's compounded daily.
R=1+\frac{\frac{r}{365}}{100}
What is in common for simple interest, compound interest and annuity investment in common?
all are paid at the end
every year in Latin
per annum
Describe the general rule for SI
V_n=V_0+n\timesd
When the value of an item decreases as a percentage of its value after each time period.
Reducing-balance depreciation
If the compounding period is monthly, what is the value of n for 3 years?
36
John says Reducing Balance Loan and Annuity are the same. Why?
For Reducing Balance Loan, you borrow a lump sum and repay for each period.
For Annuity you invest a lump sum and are paid for each period. So the formula is the same.
mortgage
Describe the recurrence relation for CI
V0=principal
V_{n+1}=V_n \times R
all are linear growth or decay
For interest only loan, describe quarterly repayment formula (D=...)?
D=V_0\times\frac{\frac{r}{12}}{100}
Sue says Perpetuity and Interest Only Loan are the same. Why?
You get paid or repay the interest for each period, so the principal is always the same.