6 | The Time Value Of Money Flashcards
What is Compound Interest?
Interest not only on the initial investment but also on the accumulated interest in previous periods.
What is Interest?
The amount paid or received in excess of the amount borrowed or lent.
What is the effective interest rate?
The rate at which money actually will grow during a full year.
What are Monetary Assets?
Money and claims to receive money, the amount which is fixed and determinable. Examples include cash and most receivables.
What are Monetary Liabilities?
Obligations to pay amounts of cash, the amount of which is fixed and determinable.
What is an Annuity?
The series of cash flows from Financial instruments that involve multiple receipts or payments of cash where the same amount is to be received or paid each period.
What is an Ordinary Annuity?
An Annuity where cash flows occur at the end of each period.
What is an Annuity Due aka Annuity In Advance?
An Annuity where cash flows occur at the beginning of each period.
What is a Deferred Annuity?
Exists when the first cash flow occurs more than one period after the date the agreement begins.
The future value of a single amount is the…
…amount of money that a dollar will grow to at some point in the future.
