FL Week 5 Banks Terms

What is the definition of interest in the context of borrowed money?

• The amount of money borrowed

• The price paid for the use of borrowed money

• The duration for which the money is borrowed

• The total amount of money to be repaid

What does simple interest calculate?

• Interest on the principal balance and interest previously earned

• Interest on the principal balance only

• Interest on the average daily balance

• Interest on the annual percentage yield

What does compound interest include in its calculation?

• Only the principal balance

• The principal balance and the average daily balance

• The principal balance and interest previously earned

• Only the interest previously earned

What is the rule of 72 used for?

• Calculating the annual percentage rate

• Finding the number of years to double your money at a given interest rate

• Determining the average daily balance

• Calculating the annual percentage yield

What does the annual percentage rate (APR) represent?

• Annual interest including compounding

• Annual interest without compounding or other added changes

• The total amount of interest to be paid over a year

• The interest rate divided by the number of days in a year

What is the difference between simple and compound interest?

• Simple interest is used on credit cards, while compound interest is used on student loans.

• Simple interest is calculated on the principal balance only, while compound interest is calculated on both the principal and previously earned interest.

• Compound interest is calculated on the average daily balance, while simple interest is not.

• Simple interest is paid to a creditor, while compound interest is earned from investing.

What does APR stand for?

• Annual Percentage Rate

• Annual Percentage Yield

• Annual Payment Rate

• Annual Payback Return

Which financial metric includes compounding?

• APR

• APY

• Both APR and APY

• Neither APR nor APY

Who typically promotes APR?

• Banks for savings accounts

• Credit card companies

• Investment funds

• Mortgage lenders

What does APY typically apply to?

• Credit card balances

• Savings accounts

• Personal loans

• Mortgage payments