5 - Time Value of Money

Question 1

Planning for retirement, valuing stocks & bonds, setting up loan payments and making corporate decisions.

Answer 1

Time value analysis

Question 2

Single most important concept

Answer 2

Time value of money

Question 3

Amount to which cash flow will grow over a given period of time when compounded.

Answer 3

Future value (FV)

Question 4

Value today of a future cash flow

Answer 4

Present value (PV)

Question 5

Determining the final value of a cash flow when compound interest is applied

Answer 5

Compounding

Question 6

Interest is earned on prior periods’ interest

Answer 6

Compound interest

Question 7

Interest is not earned on interest

Answer 7

Simple interest

Question 8

Rate of return you could earn on alternative investment of similar risk

Answer 8

Opportunity cost

Question 9

Process of finding the present value of a cash flow

Answer 9

Discounting

Question 10

Reverse of compounding

Answer 10

Discounting

Question 11

Graphical representation used to show the timing of cash flows

Answer 11

Time line

Question 12

Series of equal payments at fixed intervals for a specified number of periods

Answer 12

Annuity

Question 13

Annuity whose payments occur at the end of each period

Answer 13

Ordinary annuity

Question 14

Annuity whose payments occur at the beginning of each period

Answer 14

Annuity due