# Terminology

Throughout this textbook, we will use a number of technical and shorthand terms to explain business, economic, and financial concepts. The terms are explained as they are introduced in the textbook chapters, but a number of them will be listed here so that the reader may become familiar with them before plunging into the technical topics or refer to this section for reminders.

**Principal**: the amount of money involved in the debt or investment activity**Interest Rate (i)**: the cost of borrowing money expressed as a percent over a time period**Discount rate (i)**: used in place of an interest rate when calculating future or present values in an economic analysis, used to account for the time value of money**Interest period**: the frequency that interest is calculated (eg. daily, weekly, monthly, annually)**Duration/Length:**the total period of time that the loan/investment applies to. It is normally expressed in the total number of interest periods (N). Also known as the*amortization period*(for loans) or*interest term.***Receipts & Disbursements**: money received and spent that make up a particular cash flow pattern over a specific length of time.- o Receipts (or income): +ve
- o Disbursements (or expenses): -ve

**Future value of money (F):**the result of the cumulative effect of earning interest over a number of interest periods**Present value (P)**: the amount that a future sum of money is worth today, given a specific discount rate.**Total Interest (I):**the total amount of money earned (or paid) over a period of time due to the interest rate.**Uniform Series**: a series of equal payments, (A), that occur over a number of consecutive periods. Also called an**equal-payment series**or an**annuity**.**Project**: used sometimes to refer to the schedule of cash flows associated with a project or investment.

Other points:

- When we say interest, we typically mean compound interest. Assume compound interest unless stated otherwise or unless simple interest is explicitly stated.