Chapter 4 - TVM Flashcards
Principal
the initial size of a loan
The interest remains constant. Set level of interest that occurs every period. Calculated based on the principal investment amount.
Simple Interest
Interest that grows, you earn interest on interest. If you have 2500 and then the next year that grows to x amount because of interest rate, the next period will bild interest off x, not the principal.
Compound Interest
Future Value
Investments generate interest, a sum of $100 today will be more in 4 years time because of interest. This is called compounding
Present Value
The process is called discounting. $100 dollars in 5 years time will be worth less today.
Compounding
Finding Future value
Discounting
Finding Present Value
Multiple CFs that are the same, occur at frequent intervals, for a set period of time, beginning in one periods time.
Annuity
Multiple CFs that are the same, occur at frequent intervals, for a set period of time, beginning today
Annuity Due
Multiple CFs that are the same, that occur frequently that last FOREVER beginning in one periods time
Perpetuity
Multiple CFs that grow from an initial amount that occur at frequent intervals, last FOREVER beginning in one periods time
Growing Perpetuity
Cash Flow
The net amount of cash and cash equivalents being transferred into and out of a business.
Semiannual
Twice a year
Quarterly
4 times a year
Monthly
12 Times a year