Unit 4 March 21

Purpose of financial Institution

• Store money
• save money
• through savings accounts 
• checking accounts 
• certificate of deposits 
• money market amount 
• loan money 
• interest ( How banks make money )- price paid for the use borrowed money 
• Principal the amount you borrow 

Types of financial Intermediates

• Commercial Bank 
• Savings and loss Institution
• Credit Unions 
• Mutual Fund Companies
• Finance Companies
• assets- anything of monetary value owned by a person or business 
• Financial assets- a paper claim that entitles the buyer to future income from the seller  
• Physical Assets- a claim on a tangible object 
• Liability- a requirement to pay in the future ( Usually with interest )
• there 5 major financial assets: loans stack, bonds, loans backed securities, and banks deposits 
• the time value of money- a dollar is worth more today than it is tomorrow. you are losing money every second you are not investing it 
• present value vs. future value
• FV= future value, PV= Present Value, i= Nominal interest rate, t=time 
• future value- if you invest money to someone, it will compound according to the following equation: FV=PV(1+i)^t
• Present Value- the amount of money i need to invest now, in order to get some amount (FV is known) in future. PV=(FV/1+i)^n
• Simple Interest Formula
• V=(1+r)^n*P
• Compound Interest Formula
• V= (1+r/k)^nk*P