GENERAL MATHEMATICS
Illustrating Simple and Compound Interest
Lender/ creditor- person (or institution) who invests the
money or makes the funds available.
Borrower/ debtor- person (or institution) who owes the
money or avails of the funds from the lender.
Origin or loan date- date on which money is received by
the borrower.
Repayment date/ maturity date- date on which the
money borrowed, or loan is to be completely repaid.
Time or term (t)- amount of the time in years the money
is borrowed or invested, length of time between the
origin and maturity dates.
Principal (P)- amount of money borrowed or invested on
the origin date.
Rate(r)- annual rate, usually in percent, charged by the
lender, or rate of increase of the investment.
Interest (I)- amount paid or earned for the use of money.
Simple Interest (Is)- interest that is computed on the
principal and then added to it.
Compound Interest (Ic)-interest is computed on the
principal and also on the accumulated past interests.
Maturity value/ future value (F)- amount after t years
that the lender receives from the borrower on the
maturity date.
Compounding More than Once a Year
Frequency of conversion(m)= number of conversion
periods in one year.
Conversion or interest period= time between successive
conversions of interest.
Total number of conversion periods n
n=mt (frequency of conversion x time in years)
Nominal rate (𝐢(𝐦) ) = annual rate of interest
Rate of interest for each conversion period (j)
𝑖 (𝑚) annual rate of interest
j= =
𝑚 frequency of conversion
GENERAL ANNUITY
General Annuity- annuity where the length of the
payment interval is not the same as the length of the
interest compounding period.
General Ordinary Annuity- a general annuity in which
the periodic payment is made at the end of the payment
interval.
DEFERRED ANNUITY
Deferred Annuity- an annuity that does not begin until a
given time interval has passed.
Period of deferral- time between the purchase of an
annuity and the start of the payments for deferred
annuity.
STOCKS
Definition of Terms in Relation to Stocks
1. Stocks- share in the ownership of a company.
2. Dividend- share in the company’s profit.
3. Dividend Per Share- ratio of the dividends to the
number of shares.
4. Stock Market- a place where stocks can be
bought or sold.
5. Market Value- the current price of a stock at
which it can be sold.
6. Stock Yield Ratio- ratio of the annual dividend
per share and the market value per share. Also
called current stock yield.
7. Par Value- the per share amount as stated on the
company certificate. Unlike market value, it is
determined by the company and remains stable
over time.