Term
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Definition
| A series of payments or receipts (called rents) that occur at equal intervals. (p. 322). |
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Term
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Definition
| An annuity in which each rent is payable/receivable at the beginning of the period. (p. 322). |
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Term
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Definition
| Interest that accrues on both the principal and the interest earned in past periods (interest not withdrawn or paid out). (p. 312). |
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Term
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Definition
| An annuity in which the rents begin after a specified number of periods. (p. 332). |
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Term
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Definition
| The process of reducing the amounts or values of cash flows from the future to the present, making the present value less than the future amount. (p. 317). |
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Term
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Definition
| The rate of interest the bondholders actually earn on a bond (and which takes into account the frequency of compounding). If bonds sell at a discount, the effective yield exceeds the stated rate; if bonds sell at a premium, the effective yield is lower than the stated rate. (p. 315). |
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Term
| effective-interest method |
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Definition
| The preferred procedure for computing the amortization of a discount or premium. Under this method, companies compute bond interest expense (revenue) at the beginning of the period by the effective-interest rate and then subtract bond interest paid (calculated as the face amount of the bonds times the stated interest rate); the result is the amortization amount. (p. 335). |
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Term
| expected cash flow approach |
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Definition
| Method of calculating present value that uses a range of cash flows and incorporates the probability of those cash flows to provide as accurate as possible measure of expected future cash flows. (p. 336). |
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Term
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Definition
| The annual interest rate stated on a financial instrument. Also called nominal or stated rate. (p. 315). |
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Term
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Definition
| Value at a later date of a single sum that is invested at compound interest. (p. 316). |
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Term
| future value of an annuity |
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Definition
| The accumulated total that results from a series of equal deposits (rents) invested at compound interest. (p. 322). |
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Term
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Definition
| Payment for the use of someone elses money. It is the excess cash received/repaid over and above the amount lent/borrowed. (p. 311). |
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Term
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Definition
| The annual interest rate stated on a financial instrument (a note or bond, for example). Also called face or stated rate. (p. 315). |
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Term
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Definition
| An annuity in which each rent is payable/receivable at the end of the period. (p. 322). |
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Term
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Definition
| The value at an earlier date (usually now) of a given future sum discounted at compound interest. (p. 316). |
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Term
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Definition
| The amount borrowed or invested. (p. 311). |
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Term
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Definition
| The pure (real) rate of return plus the expected inflation rate. Typically measured by the return on a low-risk security (such as a 3-month U.S. Treasury bill). (p. 337). |
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Term
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Definition
| Interest on principal only, regardless of interest that may have accrued in past periods (compounded). (p. 312). |
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Term
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Definition
| The annual interest rate stated on a financial instrument (a note or bond, for example). Also called face or nominal rate. (p. 315). |
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Term
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Definition
| The relationship between time and money. A dollar received today is worth more than a dollar promised at some time in the future because of the opportunity to invest todays dollar and receive interest on the investment. (p. 310). |
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