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2.1        Vocabulary for Exponential Functions

Compound interest

Interest computed on the accumulated interest as well as on the original principal. Compare to simple interest.

Effective Annual Yield

The number of compounding periods per year will affect the total interest earned.   For example, if an investment compounds daily, it will earn more than the same investment with the same nominal (stated) rate compounded monthly. The effective annual yield is equivalent to the annual interest rate needed to obtain the same amount of interest. 

Exponential Function

A function which changes by a percentage amount during each time period.  The rate of change, therefore is NOT constant like it is with a linear function.  Exponential functions can either exhibit growth or decay.

Function

A function f  is a process which takes any element, a, of a set A and transforms it into a unique element f(a) of a set B.  The set A is called the domain and the set B is called the co-domain of f.

Interest

A charge for a financial loan, usually a percentage of the amount loaned. 

Linear Function

A function whose  is constant, i.e. the  is the same for any two ordered pairs  of the function.  The graph of a linear function is a straight line.   The equation  is a common linear form, where m  is the constant rate of change, or slope, and  b is the vertical (y)intercept.

Nominal Interest Rate

The stated, or advertised, rate as opposed to the actual or market value.

Simple Interest

Interest paid only on the original principal, not on the interest accrued.

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