Ch 6 ls

The formula for the present value of an annuity due is

(1+r) x (PV of an ordinary annuity)

the interest rate per period multiplied by the number of periods in the year

APR

another term for EAR

APY

(1+r/m)m-1

EAR

the interest rate stated as though it were compounded once per year

EAR

simplest form of a loan

a pure discount loan

The process of paying off loans by regularly reducing the principal

amortization

an annuity due is a series of payments that are made

at the beginning of each period

In a ? loan the amount of interest paid decreases each period and the principal amount paid increases each period

fixed payment

In a ? the cash flows grow for a finite period and a constant rate

growing annuity

A perpetuity is a constant stream of cash flows for an ? period of time

infinite

Traditional non-growing annuity consists of a ? stream of cash flows for a fixed period of time

level

a single cash flow

lump sum

The present value of an annuity due is equal to the present value of an ? annuity multiplied by (1+r)

ordinary

ways to amortize a loan

pay the interest each period plus some fixed amount of the principal or pay principal and interest every period in a fixed payment

C/r is the formula for the present value of a

perpetuity

original loan amount

principal

interest paid twice a year is ? compounding

semi-annual

Assume interest is compounded monthly. The ? annual rate will express this rate as though it were compounded annually.

effective

In almost all multiple cash flow calculations, it is implicitly assumed that the cash flows occur at the ? of each period

end

Ways to calculate a balloon payment

find the present value of the payments remaining after the loan term or amortize the loan over the loan life to find the ending balance

Another common name for the effective annual rate is the annual percentage

yield