86 Glossary of Key Terms (Part II)

annuity

a stream of regular, periodic payments to be received or paid

annuity due

a stream of periodic payments in which the payment or receipt occurs at the beginning of each period

constant perpetuity

a stream of periodic payments that is expected to continue indefinitely with no change in the amount paid or received

discount rate

an interest rate used in time value of money calculations to determine present value; may derive from several sources, such as stated contract rates, costs to borrow, or expected rates of return on investments

effective interest rate

the interest rate that results when compounding occurs multiple times within a year; the true cost of borrowing

growing perpetuity

a stream of periodic payments that is expected to continue indefinitely with growth of the amount paid or received in the future, usually by a fixed percentage

loan amortization

the scheduling of periodic repayment of a debt, typically involving regular payments or receipts of amounts that include both interest payment and repayment of the principal of the amount owed

lump sum

a single cash payment made in lieu of a series of future payments, such as a lottery payout or a legal settlement

ordinary annuity

a stream of periodic payments in which the payment or receipt occurs at the end of each period

perpetuity

a stream of periodic payments that is expected to continue indefinitely

preferred stock

shares of ownership in a corporation that typically entitle the holder to a fixed dividend per share, if declared by the corporation, with priority over holders of that corporation’s common stock

required rate of return

the minimum amount of return that an investor will accept on an investment given the level of risk involved

retirement planning

the process of determining one’s objectives for retirement, including one’s finances, and developing strategies and tactics to achieve them

structured settlements

monetary legal settlements that are paid out in installments, such as an annuity, rather than a lump sum cash amount

Attribution:

This chapter is from “Principles of Finance”  https://openstax.org/books/principles-finance/pages/1-why-it-matters by Dahlquist and Knight. This book is licensed under the CC-BY 4.0 license. 2022 OpenStax.

https://openstax.org/books/principles-finance/pages/1-key-terms

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