chapter 4 Flashcards
a dollar received one year from today has ______ value than a dollar received today
less
future value is the ______ value of an investment at some time in the future
cash
if you invest for ________ at an interest rate of r, your money will grow to (1 + r) per dollar invested
one period
the idea behind compounding is that
interest is earned on interest
what kind of interest is not reinvested
simple interest
FV =
PV * (1 + r) ^ t
when dealing with compound interest, it is more financially advantageous to have a ______ time horizon for investment
longer
calculating the PV of a future cash flow to determine its worth today is commonly called _____ valuation
discounted cash flow (DCF)
discounting resulting value is called ______ value, compounding resulting value is called ______ value
present, future
present value factor equation
1/(1 + r) ^ t
the PV factor is _____ the FV factor
the reciprocal of, 1 divided by
r in PV equation is the
discount rate
PV single period formula
PV = FV/(1 - r)
the process of leaving your money and any accumulated interest in an investment for more than one period is called
compounding
