AMDM - Unit 7 Test

Front

What is compound interest?

Back

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

Front

How is compound interest calculated when compounded quarterly?

Back

To calculate compound interest compounded quarterly, use the formula A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, 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 to invest a fixed amount monthly?

Back

Investing a fixed amount monthly means contributing a set dollar amount into an investment account at regular intervals, which can help in building wealth over time through the power of compounding.

Front

What is the formula for future value of a series of cash flows?

Back

The future value of a series of cash flows can be calculated using the formula FV = Pmt × (((1 + r)^nt - 1) / r), where Pmt is the payment amount per period, r is the interest rate per period, and nt is the total number of payments.

Front

What is the significance of a down payment in a loan?

Back

A down payment is an upfront payment made when purchasing an expensive item, such as a car or house, which reduces the amount of the loan needed and can affect the interest rate.

Front

How do you calculate the total cost of a car including taxes and fees?

Back

To calculate the total cost of a car, add the purchase price, taxes (calculated as a percentage of the purchase price), and any additional fees (like registration and title fees).

Front

What is the effective interest rate?

Back

The effective interest rate is the actual interest rate an investor earns or pays in a year, taking into account the effects of compounding.

Front

What are the components of a paycheck deduction?

Back

Components of paycheck deductions typically include federal tax, state tax, Social Security, Medicare, health insurance, and retirement savings.

Front

What is the formula to calculate monthly take-home pay?

Back

Monthly take-home pay can be calculated by subtracting all deductions (taxes, insurance, retirement contributions) from the gross monthly income.

Front

What does 'semi-annually' mean?

Back

Semi-annually means occurring twice a year.