D076 Finance Skills for Managers - Unit
3
Interest Rate - ✔✔the percentage of the principal that a lender charges a borrower for the use of
assets.
Annual precentage rate (APR) - ✔✔The annual interest rate that is charged for borrowing money or
that is earned through investment.
Discount Rate - ✔✔The name for interest rate when used in time value of money calculations.
Cost of Capital - ✔✔The cost to a firm to use an investor's capital; see interest rate
2 Types of interest - ✔✔Simple and Compound
Simple Interest - ✔✔The interest earned only on the principal.
Annual Interest = Principal x Interest Rate - ✔✔Simple Interest
Compounding Interest - ✔✔The interest on the principal plus the interest on earned interest.
Total Interest=Principal×(1+Interest Rate)^Number of Periods−Principal - ✔✔Compounding Interest
What is the term for the percentage of the principal that a lender charges a borrower for the use of
assets? - ✔✔Interest rate
How is the interest rate expressed? - ✔✔As a percentage
, What is the main purpose of charging interest? - ✔✔It allows borrowers to pay to use the assets of
another entity to accomplish their own goals.
Required rate of return - ✔✔the rate of return or compensation that an investor or a lender will accept
for investments such as stocks, bonds, or loans.
3 Things that determines interest rates - ✔✔1. Opportunity Cost
2. Risk
3. Inflation
Opportunity Cost - ✔✔the loss of potential gain from other alternatives when one alternative is
chosen.
Risk - ✔✔the possibility that the realized or actual return will differ from the expected return.
Inflation - ✔✔the rate which the average price level of goods and services in an economy increases
over a period of time.
What is a component of the required rate of return?
- Hurdle Rate
- Simple Interest
- Compound Interest
- Opportunity Cost - ✔✔Opportunity Cost
3
Interest Rate - ✔✔the percentage of the principal that a lender charges a borrower for the use of
assets.
Annual precentage rate (APR) - ✔✔The annual interest rate that is charged for borrowing money or
that is earned through investment.
Discount Rate - ✔✔The name for interest rate when used in time value of money calculations.
Cost of Capital - ✔✔The cost to a firm to use an investor's capital; see interest rate
2 Types of interest - ✔✔Simple and Compound
Simple Interest - ✔✔The interest earned only on the principal.
Annual Interest = Principal x Interest Rate - ✔✔Simple Interest
Compounding Interest - ✔✔The interest on the principal plus the interest on earned interest.
Total Interest=Principal×(1+Interest Rate)^Number of Periods−Principal - ✔✔Compounding Interest
What is the term for the percentage of the principal that a lender charges a borrower for the use of
assets? - ✔✔Interest rate
How is the interest rate expressed? - ✔✔As a percentage
, What is the main purpose of charging interest? - ✔✔It allows borrowers to pay to use the assets of
another entity to accomplish their own goals.
Required rate of return - ✔✔the rate of return or compensation that an investor or a lender will accept
for investments such as stocks, bonds, or loans.
3 Things that determines interest rates - ✔✔1. Opportunity Cost
2. Risk
3. Inflation
Opportunity Cost - ✔✔the loss of potential gain from other alternatives when one alternative is
chosen.
Risk - ✔✔the possibility that the realized or actual return will differ from the expected return.
Inflation - ✔✔the rate which the average price level of goods and services in an economy increases
over a period of time.
What is a component of the required rate of return?
- Hurdle Rate
- Simple Interest
- Compound Interest
- Opportunity Cost - ✔✔Opportunity Cost
