# 02 - Financial Mathematics

 Compound Interest Interest paid on the investment during the first period is added to the principle, and during the second period interest is earned on the original principal plus the interest earned in the first period. Discount Rate The interest rate that converts a future vale to the present value. Discounting The process of converting a future value to its present value. Discount Factor The quantity that converts a particular future sum of money to its present value. Present Value Interest Factor (PVIF) Converts (discounts) a future value to its present value, at a discount rate of i per period compound interest for n periods. Nominal Annual Rate of Interest (Annual Percentage Rate - APR) The nominal rate j is a way of representing how interest is paid (or charged). If the rate j is paid m times per annum, the periodic rate paid is j/m. Annuity A series of equal dollar payments for a specified number of periods. Ordinary Annuity An annuity whose payments are made at the end of each period. Future Value Interest Factor for an Annuity (FVIFA) Converts a payment of \$1 per period (at the end) to its future value in n periods of time at i% compound interest per period. General Annuity Features a payment frequency that differs from the interest-compounding frequency. Equivalent Interest Rates Interest rates that have the same effective annual rate. Annuity Due An annuity where payments are made at the beginning of each period. Perpetuity An annuity with an infinite life. Bond A long-term debt security issued by the borrower, promising to pay the owner of the security a predetermined amount of interest each year and a principal amount at maturity. Book Value The value of an item in a firm's balance sheet. Liquidation (Disposal) Value The amount that could be realised if an asset were sold independently of the going concern. Going-concern Value The amount realised if the entire firm is sold as a going concern rather than on the basis of liquidating its assets. Market Value The value observed in the marketplace, where buyers and sellers negotiate a mutually acceptable price for the asset. Intrinsic Value The present value of the investment's expected future cash flows, discounted at the investor's required rate of return. Coupon Interest Rate The cash flow to be regularly paid to the bondholder as coupon interest payments, expressed as a percentage of par value. Expected Rate of Return The discount rate that equates the present value of the future cash flows with the current market price. Yield to Maturity The rate of return the investor will earn if a bond is held to maturity. Dividend Yield The dividend per share divided by the price of the security. AuthorLea_ ID316666 Card Set02 - Financial Mathematics Description211 - Financial Mathematics Updated2016-03-06T22:43:42Z Show Answers