Explanation

ROI (Return On Investment) is a financial metric that calculates the return or profit generated by an investment.

It expressed as a percentage of the original investment amount.

It helps evaluate the performance and profitability of an investment or project.

Explanation

The primary difference between nominal and real interest rates is that:

• Real interest rates are adjusted for inflation.
• While nominal interest rates are not.
• Real interest rates reflect the actual purchasing power of the interest earned.
• While nominal interest rates do not account for inflation's erosion of purchasing power.

Explanation

The principal is the initial amount of money borrowed or invested, before interest is added or earned.

It is the base amount used to calculate interest.

It is often referred to as the original investment or loan amount.

Explanation

Explanation

The calculation of compound interest is affected by the principal amount, interest rate, and number of compounding periods, but not by the inflation rate.

Inflation rate affects the purchasing power of the interest earned, but not the calculation of compound interest itself.

Explanation

When interest is compounded more frequently, the effective annual rate (EAR) increases.

As the interest earns interest more often, resulting in a higher effective rate of return.

This means the investment grows faster over time.

Explanation

The longer the time period, the more simple interest is earned.

As interest is calculated on the principal amount for a longer duration.

It resulting in a higher total interest amount.

Explanation

Yield to maturity (YTM): Interest rate that equals present value of cash flows to market price.

It representing total return on investment if held to maturity.

Explanation

The future value of an investment is determined by the principal amount, interest rate, and time period.

But inflation rate is not a direct factor in the calculation.

Explanation

Amortization refers to the process of gradually reducing a debt through regular loan payments.

It allocating a portion of each payment to interest and the remaining amount to the principal, until the loan is fully repaid.