Key Terms for Chapter 12

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Chapter 12 Key Terms of "Practical Business Math Procedures" by Jeffrey Slater
Laura Samuelson
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Annual Percentage Yield (APY) Truth in Savings law forced banks to report actual interest in form of APY. Interest yield must be calculated on actual number of days bank has the money
Compound Amount The future value of loan or investment
Compound Interest The interest that is calculated periodically and then added to the principal. The next period the interest is calculated on the adjusted principal (old principal plus interest)
Compounded Annually Interest on balance calculated once a year
Compounded Daily Interest calculated on balance each day
Compounded Monthly Interest on balance calculated twelve times a year
Compounded Quarterly Interest on balance calculated four times a year
Compounded Semiannually Interest on balance calculated two times a year
Compounding Calculating the interest periodically over the life of the loan and adding it to the principal
Effective Rate True rate of interest. The more frequent the compounding, the higher the effective rate
Future Value (FV) Final amount of the loan or investment at the end of the last period. Also called compound amount
Nominal Rate Stated rate
Number of Periods Number of years times number of times interest is compounded per year
Present Value (PV) How much money will have to be deposited today (or at some date) to reach a specific amount of maturity (in the future)
Rate for Each Period Annual rate divided by number of times interest is compounded in one year
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