Fall 2024 - AFA Final Exam Review

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What is the formula to calculate the future value of an investment compounded annually?

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The future value (FV) can be calculated using the formula: $$FV = P(1 + r)^n$$ where P is the principal amount, r is the annual interest rate, and n is the number of years.

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What is capitalization of interest in the context of loans?

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Capitalization of interest occurs when unpaid interest is added to the principal balance of a loan, increasing the total amount owed.

Tags

CCSS.7.RP.A.3

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What is the difference between subsidized and unsubsidized federal student loans?

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Subsidized loans do not accrue interest while the borrower is in school, while unsubsidized loans accrue interest from the time they are disbursed.

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How do you calculate the total interest paid on a loan?

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Total interest can be calculated using the formula: $$I = P imes r imes t$$ where I is the interest, P is the principal, r is the annual interest rate, and t is the time in years.

Tags

CCSS.7.RP.A.3

Front

What is the significance of the APR in loans?

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APR (Annual Percentage Rate) represents the yearly cost of borrowing, including interest and fees, expressed as a percentage.

Tags

CCSS.7.RP.A.3

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When do federal student loan payments typically begin?

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Federal student loan payments are expected to start 6 months after the borrower is no longer attending school.

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What is the formula for calculating monthly payments on an amortized loan?

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The formula for monthly payments (M) is: $$M = P \frac{r(1 + r)^n}{(1 + r)^n - 1}$$ where P is the loan amount, r is the monthly interest rate, and n is the number of payments.

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What is the formula for calculating the balance of an account with compound interest?

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The balance can be calculated using the formula: $$A = P(1 + r/n)^{nt}$$ where A is the amount of money accumulated after n years, including interest, P is the principal, 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.

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What is the tax rate for married couples filing jointly with an income of $33,294?

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The tax for married couples filing jointly with an income of $33,294 is $4,064.

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What does it mean to 'amortize' a loan?

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To amortize a loan means to gradually pay off the debt over time through regular payments that cover both principal and interest.