Chapter 5 Flashcards
1
Q
What is Present Value?
A
The value today of cash flow received in the future.
2
Q
What is Future Value?
A
The value of the cash flow at some future date.
3
Q
What is Principal?
A
Initial cash flow borrowed or lent.
4
Q
What is an interest rate?
A
The price of money in borrowing or lending transactions.
5
Q
What is simple interest?
A
Interest is earned on only the principal.
6
Q
What is compound interest?
A
Interest is earned on the principal and the reinvested interest.
7
Q
What are Discounted Cash Flows (DCF)?
A
PV of future cash flows.
8
Q
What is the concept for a given interest rate?
A
The longer the time period the lower the present value is.
9
Q
What is the concept for a given time period?
A
The higher the interest rate the lower the present value.
