Earning Interest

Tyler Rash

12/14/11 Period:1

Bank Savings Account

account you have with a bank that pays interest on funds.

Money Market Funds

an investment vehicle that pays back principle plus installments of interest.

Government Bonds

bonds issued by the government; tax exempt; obtain by loaning money to the government, which the government then uses to fund itself and pay off debts; pays back you money after a fixed amount of time, plus extra payments generated by interest.

Annual Percentage Yield (APY)

defined as the interest rate earned over a year taking compound interest into effect.

interest

fee paid to use money:usually expressed as a percentage.

Federal Funds Rate

interest rate charged to banks.

Market Interest Rates

interest rates which are changed by the Federal Reserve to banks.

Short Term Loans

loans that have to be repaid within less than one year.

simple interest

one of the most common types of interest; used to determine interest earned in savings accounts at banks; determined by the formula I=P*R*T*.

Compound interest

powerful way interest is calculated; involves caculating interest on money and any interest you have earned up to that point.

Power of 72

quick formula for estimating how long it will take for an investor to double their money; computed by dividing 72 by the interest rate.

installments

recurring amounts at a specified time, such as annually.

Annual Precentage Rate

resulting rate when interest rates are expressed in years.

Principle

the amount invested.

Risk

the chance of fluctation in a return; in general, the higher the risk the higher the rate of return.