12 terms

Compound Interest

when interest is paid on both the original principal and any accumulated interest

Simple Interest

when interest is paid on the original principal only

Compound Interest Formula

Future Value=(Present Value)(1+interest rate)^(number of time periods)

FV=PV(1+i)^n

FV=PV(1+i)^n

Present Value

Amount at the beginning of the term

Future Value

Amount at the end of the time period

Order of operations

1. Parentheses

2. Exponents

3. Multiplication/division

4. Addition/subtraction

2. Exponents

3. Multiplication/division

4. Addition/subtraction

Total Interest

Total Interest=Future Value- Present Value

TI=FV-PV

TI=FV-PV

Continuous compound formula

FV=PVe^(r)(t)

Irrational number

When represented by a decimal, the decimal never stops or forms any repeating pattern

Rule of 72

The time required for a sum of money to double at a compound interest rate is approximately 72/x years

Equivalent annually compounded rate (EACR) Effective interest rate

the annually compounded rate which produces the same results as a given interest rate and compounding

Nominal rate

the original interest rate