Key Terms for Chapter 12

Question	Answer
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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	Created by Laura Samuelson 3 months ago