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Chapter 3 (Compound Interest)
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Terms in this set (12)
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
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
Total Interest
Total Interest=Future Value- Present Value
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
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