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Simple Interest and Simple Discount
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Terms in this set (19)
Principal
The amount of money borrowed or invested.
Interest
An amount paid or earned for the use of money.
Simple interest
Interest paid on only the principal of the original loan or investment.
Rate
The percent of the principal paid as interest per time period.
Time
The number of days, months, or years that the money is borrowed or invested.
Prime interest rate (prime), reference rate, or base lending rate
The lowest rate of interest charged by banks for short-term loans to their most creditworthy customers.
Federal funds rate
The interest rate when banks actively trade balances held at the Federal Reserve with each other, usually overnight. Banks with surplus balances in their accounts lend those balances to banks in need of larger balances on a short term basis.
Maturity value
The total amount of money due at the end of a loan period--the amount of the loan and the interest.
Ordinary interest
Assumes 360 days per year.
Exact interest
Assumes 365 days per year.
Banker's rule
Calculating interest on a loan based on ordinary interest--which yields a slightly higher amount of interest.
U.S. rule
Any partial loan payment first covers any interest that has accumulated. The remainder of the partial payment reduces the loan principal.
Adjusted principal
The remaining principal after a partial payment has been properly credited.
Adjusted balance due at maturity
The remaining balance due at maturity after one or more partial payments have been made.
Undiscounted note
Another term for a simple interest note.
Effective interest rate of a simple discount note
The actual interest rate based o the proceeds of the loan.
Third party
An investment group or individual that assumes a note that was made between two other parties.
Third-party discount note
A note that is sold to a third party (usually a bank) so that the original payee gets the proceeds immediately and the maker pays the third party the original amount at maturity.
Discount period
The amount of time that the third party owns the third-party discounted note.
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