Financial Math Glossary
It is concerned with the application of mathematics to financial concerns, market modeling, & financial data analysis
Financial mathematics is concerned with applying mathematics to financial concerns, market modeling, & financial data analysis.
Financial mathematics may help in risk detection & management. This financial math dictionary describes and defines the most important financial math terms & terminology.
Interest
The borrower makes the payment to the lender in exchange for using the lender's funds. The borrowed money is known as capital.
Compound Interest
Interest paid on the present amount owed / in the account.
A type of investment in which recurring payments (contributions) are deposited into an account that accumulates compound interest.
Balance
The amount owed on a loan or the balance in an account.
Advance Payment
Money is withdrawn as cash from a credit card account.
Contribution
An annuity payment is provided regularly.
Credit card
An account allows the user to purchase an item without using cash and repays the bank the purchase price plus interest.
Deferred Payment
An offer in which customers can "purchase now and pay later." The payment for the item has been postponed.
Deposit
A first payment toward the purchase price of an item.
Fee
A fee is any charge made to an account for service.
Future Worth
The worth of an asset, investment, or account in the future.
An Annuity's Future Value (FVA)
At the conclusion of a term, the total value of an annuity investment, including all payments and interest paid.
Purchase of Hire
A payment method for an item is making small payments over a set period (also called Term Payments).
Interest-free period
A period during which no interest is charged on a credit card, loan, or purchase plan.
Loan Repayment Table
A table shows the amount of money paid for a loan of a specific amount and the interest rate every payment cycle.
Period
The amount of time between loan repayments (and often between each compounding of interest).
Present Value
The present worth of a product, investment, or account. Also known as the principal.
Present Value of an Annuity (PVA)
You might invest the amount of money (or capital) today at the same compound interest rate as an annuity to achieve the same future value over the same period (term).
Principal
The initial sum of money is generally for an investment or purchase.
Loan Balance Reduction
A loan in which interest is imposed on the loan's current balance.
Repayment
A payment made to pay off an item or a debt.
Term
The amount of time it takes to repay a debt or make an investment.
Payment Terms
A method of paying for an item is to make recurring smaller payments over a certain period (also called Hire Purchase).
Loan with a Fixed Rate
A basic interest loan, generally for a short period.
The annuity factor
For each of the t periods, the present value of $1 is paid.
The arithmetic mean
The sum of the values of the points in a data collection divided by the number of data points yields the average.
Constant Perpetuity
A never-ending sequence of identical monetary flows.
Correlation
A statistical measure of the movement of two securities in respect to one another.
A bond investor's coupon rate is the amount of interest received on a nominal yearly basis.
A statistical measure of the variance of two random variables is measured or seen simultaneously.
The coupon on a bond represents a percentage of the bond's market price.
The percentage rate must be used to compute the present value of a future cash flow.
Increasing Perpetuity
A never-ending stream of cash flows that is intended to continue perpetually.
The Moving Average
The sum of time-series data from several successive periods. A moving average is so named because it is continually updated when new data for the following period becomes available.
Par value
The amount repaid to the bond investor by the issuer upon maturity is known as the par value.
R-Squared is a statistical term that indicates how well one term predicts another. A greater R-Squared number suggests that you can better expect one term from another.
Analysis of Regression
A statistics-based strategy for analyzing data that can be utilized in Excel.
Standard deviation
Measures how a batch of data deviates from the norm—the greater the distance, the greater the standard deviation. The square root of the variance is used to calculate the standard deviation.
Sum of square roots
The Sum of Squares Regression (SSR) evaluates the variance in modeled values. It compares it to the Total Sum of Squares (SST), which measures variation in observed data, and the Sum of Squares Residual (SSE), which measures variation in modeling mistakes.
Money's Time Value
The belief is that money is more valuable the sooner it is received or in the present because money in the present may be utilized and invested to earn a return, but money in the future cannot. Therefore, the time value of money is impacted by both the periods under consideration and the discount rate used to calculate the present value.
Variance
The dispersion of a group of data points around their mean value is measured by variance. It is a mathematical prediction based on the average squared deviations from the mean.
Weighted Average
An average in which specific values are more important than others.
Maturity Yield
A bond investor would receive the yearly return if they bought a bond today and held it to maturity.
Researched and Authored by Manal Fatima | LinkedIn
Free Resources
To continue learning and advancing your career, check out these additional helpful WSO resources:
or Want to Sign up with your social account?