21 C AFME Calculation of Interest and Annuities
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Accounting and Financial Management for Bankers — JAIIB.
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Free sample — 8 of 65 rapid-fire Q&A cards.
What is simple interest and how is it calculated?
Simple interest is interest calculated only on the principal amount. The formula is SI = P × R × T / 100, where P is principal, R is rate per annum, and T is time in years.
What is the formula for simple interest when principal, rate, and time are known?
SI = (P × R × T) / 100
How does compound interest differ from simple interest?
Compound interest is calculated on the principal plus accumulated interest from previous periods, whereas simple interest is calculated only on the original principal. This causes compound interest to grow faster over time.
What happens to the principal in a compound interest calculation at the end of each period?
Interest is added to principal to form new principal
What is the formula for compound interest when compounding is done annually?
The compound interest formula is A = P(1 + r/n)^(nt), where A is the maturity amount, P is principal, r is annual rate, n is number of compounding periods per year, and t is time in years.
What is the formula for the present value of a single future cash flow?
PV = FV / (1 + r)^n
What does the term 'compounding frequency' mean in interest calculations?
Compounding frequency refers to how often interest is calculated and added to the principal in a given year. Common frequencies include annual, semi-annual, quarterly, monthly, and daily compounding.
What is an annuity-due and how does it differ from an ordinary annuity?
Annuity-due has payments at beginning, ordinary at end of period
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