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D076 Finance Skills for Managers - Unit 3 £9.49
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D076 Finance Skills for Managers - Unit 3
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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 ...

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  • February 3, 2024
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  • 2023/2024
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  • d076 finance skills for managers unit 3

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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

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