4 TVM 1: Analysing single cash flows Flashcards
Contains key definitions ONLY.
Cash flow.
The net amount of money being paid or received.
Compounding.
The process of adding interest earned every period on both the original investment and the reinvested earnings.
Discount rate.
The interest rate used to discount future cash flows to the present.
Discounting.
The process of finding present value by reducing future values using the discount, or interest, rate.
Future value(FV).
The value of an investment after one or more periods.
Inflow.
Cash received, often from income or sale of an investment.
Interest rate.
The cost of borrowing money denoted as a percent.
Outflow.
Cash payment, often a cost or the price of an investment or deposit.
Present value (PV).
The amount a future cash flow is worth today.
Rule of 72.
An approximation for the number of years needed for an investment to double in value.
Simple interest.
Interest earned only on the original deposit.
Time line.
A graphical representation showing the size and timing of cash flows through time.
