Chapter 3: The time value of money Flashcards
1
Q
Interest
A
A reward paid by one party for the use of an asset belonging to another party
2
Q
Principle of consistency
Write the equation
A
The accumulated proceeds of an investments in a consistent market will not depend on the actions of an investor
A(t0,tn) = A(t0,t1) A(t1,t2) … A(tn-1,tn)
3
Q
Commercial discount
What is it denoted as ?
A
Simple discount rate
4
Q
Equivalent rates
A
Two rates of interests are equivalent if given the same amount of interest invested for the same length of time, produces the same accumulated values under each of the rates.
5
Q
Relationship between i and d
A
d <= i
- Credited for paying interest early
- However, taking TVOM into accoount, you should pay the same amount
6
Q
Nominal interest
A
P equal installments of interest instead of paying i at the end or d at the begining
