2.2 Flashcard Review

Front

What is the formula to calculate the Annual Percentage Yield (APY) for a loan compounded daily?

Back

APY = (1 + r/n)^(nt) - 1, where r is the annual interest rate, n is the number of compounding periods per year, and t is the number of years.

Front

What does it mean when a loan has a grace period?

Back

A grace period is a time frame during which the borrower is not required to make payments, but interest may still accrue.

Front

What is the significance of the term 'principal' in a loan?

Back

The principal is the original sum of money borrowed or invested, excluding interest.

Front

How do you convert months into years for the compound interest formula?

Back

To convert months into years, divide the number of months by 12.

Front

What is the difference between a private loan and a federal loan?

Back

Private loans are offered by private lenders and often have different terms, while federal loans are government-backed and typically have more favorable terms.

Front

What is the formula for compound interest?

Back

A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount, r is the annual interest rate, n is the number of times that interest is compounded per year, and t is the number of years.

Front

What does it mean for interest to be compounded daily?

Back

Compounding daily means that interest is calculated and added to the principal balance every day.

Front

What are the three main components of any loan?

Back

The three main components are the principal, the interest rate, and the loan term.

Front

How do you calculate the future value of an investment with compound interest?

Back

Use the formula A = P(1 + r/n)^(nt) to find the future value of the investment.

Front

What is the impact of making payments while still in school on a private loan?

Back

Making payments while in school can reduce the overall interest accrued and lower the total amount to be repaid.