Chapter 11 - Vocab Flashcards
The money received in excess of the initial investment
Return ON investment
The process of adding interest to principal for purposes of interest calculations.
Compounding
The rate of return that a virtually riskless investment produces.
Risk-free rate of return
A tool used to solve problems involving the comparison of cash flows that occur at different points of time.
Time value of money
An expected rate of return including the risk premium.
Risk-adjusted expected rate of return
An increase in the rate of return expected by an investor for assuming greater investment risk.
Risk premium
Exposure to the chance that unfavorable outcomes will occur at some future point in time.
Risk
Interest calculated only on the amount borrowed.
Simple interest
Interest that is based on a principal amount that includes interest from previous time periods.
Compound interest
Rate of return based on a one-year time period.
Annual rate of return
The amount of money that accumulates at some future date as a result of making equal payments over equal intervals of time and earning a specified rate of interest over that time period.
Future value of an annuity
A percentage measurement of the performance of investments on a common-size basis.
Rate of return
A series of equal cash payments made at equal intervals.
Annuity
A summary measure of an investment’s performance, stated as a percentage, based on the possible rates of return and on the likelihood of those rates occurring.
Expected rate of return
The amount of money that, if invested at some rate of interest today, will generate a set number of equal periodic payments that are made over equal time intervals.
Present value of an annuity
The amount that $1 becomes at a future date, if invested at a specified annual interest rate and compounded a certain number of times per year over the investment period.
Future value of the amount of $1
The amount that, if invested today at some compound interest rate for a specified period of time, will equal $1 at the end of that time period.
Present value of the amount of $1
The chance of a decline in the purchasing power of monetary units during the time money is invested.
Inflation Risk
The chance that an investment cannot be readily converted to cash.
Liquidity risk
The return of the amount initially invested.
Return OF investment
The risk associated with the ability of a particular company to continue in business.
Business Risk
