Lender or creditor- person (or institution) who invests the money or makes the funds available

Borrower or debtor- person (or institution) who owes the money or avails of the funds from the lender

Interest- income derived from invested capital

- money paid as rental for the use of money

Interest (I)- a fixed rated proportion as the rate of interest for any specified time unit.

Interest Rate(r) - ratio of the interest earned in one time unit to the principal.

Principal or Present Value (P)- refers to the capital originally invested in a business transaction.

Amount / Full Amount/ Maturity or Future Value (F)- the sum of the Principal (P) and the Interest (I) due at any
time after the investment of the Principal (P).

Time (t)- period of coverage of the transaction. Unless otherwise specified, the time unit will be one year.

Simple Interest- interest that is computed on the principal and then added to it
Compound Interest- interest is computed on the principal and also on the accumulated past interests

Simple Interest

 The unit for time (t) is in year(s).

 When given time (t) is in months, convert it to year (divide by 12).
 When given time (t) is in days, convert it to year (divide by 360 or 365).

Compound Interest

 If during the term of investment, the interest due at stated intervals is added to the principal and thereafter
earns interest, the sum of the increases over the principal by the end of the term of investment is called
Compound Interest.

Compound Amount- the total amount due which consists of the principal and the compound interest.

Conversion Period- the time between the successive conversions of interest into principal.

Conversion Period- the number of unit of time in one year as basis for computing interest which could be either (a)
annually, (b) semi-annualy, (c) quarterly, or (d) monthly.

Nominal rate- refers to the rate of borrowing and is usually quoted as an annual interest rate, unless otherwise
specified.

Periodic rate or interest rate per compounding period- refers to the interest rate per conversion period. It is equal
to the nominal rate divided by the compounding period in a year.