Compound Interest
2.10 Terminology and Glossary of Symbols
Terminology
- Dated value or equivalent value: The value of a sum of money at a specific time relative to its due date, including the amount of interest.
- Effective interest rate: refers to the nominal interest rate that is compounded annually.
- Future value (accumulated or maturity value) (FV): The value obtained when the amount of interest is added to the original principal.
- Nominal rate (I/Y): the yearly or annual rate of interest.
- Present value (principal or discounted value) (PV): The amount borrowed or invested at the beginning of a (loan or investment) period.
- Term (t): Refers to either an investment term or loan term, which is the time period an amount is lent or borrowed.
Glossary of Symbols
Compound Interest
- I/Y: Nominal interest rate (%)
- C/Y: frequency of compounding period per year
- P/Y: number of periodic payments per year; for compound interest problems it is equal to C/Y
- PMT: Periodic payment; for compound interest problems it is zero.
- i: Interest rate per compounding period (%)
- t: time period of a loan or investment term (in years)
- N: Number of compounding periods in the term
- PV: Principal (Present Value) ($)
- FV: Future (maturity) value ($)
- CI or I: Compound Interest Amount ($)
Interest Conversion
- NOM: Nominal interest rate (%)
- EFF: Effective interest rate (%)
Date
- DT1: Beginning date
- DT2: End date
- DBD: The number of days between dates DT1 and DT2
