Ch 4: Discounted Cash Flow Valuation

Question 1

What is the future value of an investment?

Answer 1

the total amount due at the end of the investment

Question 2

What is present value?

Answer 2

amount a borrower would need to set aside today to be able to meet the promised payment in one year

Question 3

What is the net present value?

Answer 3

present value of expected cash flows minus the cost of the investment

Question 4

What is the effective annual rate of interest?

Answer 4

annual rate that would yield the same end-of-investment value after specified amount of time

Question 5

What is a perpetuity?

Answer 5

constant stream of cash flows that last forever

Question 6

What is a growing perpetuity?

Answer 6

stream of cash flows that grows at a constant rate forever

Question 7

What is an annuity?

Answer 7

stream of constant cash flows that lasts for a fixed number of periods

Question 8

What is a growing annuity?

Answer 8

stream of cash flows that grows at a constant rate for a fixed number of periods