Chapter 12 - Key Terms

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 Laney Feek 4 months ago