chap 5 - time value money

Question 1

future value

Answer 1

the amount an investment is worth after one or more periods

Question 2

compounding

Answer 2

the process of accumulating interest on an investment over time to earn more interest

Question 3

interest on interest

Answer 3

interest earned on the reinvestment of previous interest payments

Question 4

compound interest

Answer 4

interest earned on both the initial principal and the interest reinvested from prior periods

Question 5

simple interest

Answer 5

interest earned only on the original principal amount invested

Question 6

present value

Answer 6

the current value of future cash flows discounted at the appropriate discount rate

Question 7

discount

Answer 7

calculate the present value of some future amount

Question 8

discount rate

Answer 8

the rate used to calculate the present value of future cash flows

Question 9

discounted cash flow (DCF) valuation

Answer 9

calculating the present value of a future cash flow to determine its value today