Chapter 5 Flashcards
Where interest from the first year is added to the principle and interest earned in the second year is earned on the principle and interest from prior years
Compounding Interest
The amount to which your investment will grow
Future Value
The value used as a multiple to calculate the future value
Future Value Factor
When interest is only earned on the initial investment
Simple Interest
The value in today’s dollars of a future payment discounted back to present at the required rate of return
Present Value
The value used as a multiplier to calculate an amount’s present value
Present Value Factor
A series of equal dollar payments made for a specified number of years
Annuity
An annuity where the cash flows occur at the end of each period
Ordinary Annuity
Depositing an equal sum of money at the end of each year for a certain number of years and allowing it to grow
Compound Annuity
The value used as a multiplier to calculate the future value of an annuity
Annuity Future Value Factor
The value used as a multiplier to calculate the present value of an annuity
Annuity Present Value Factor
An annuity where the payments occur at the beginning of each period
Annuity Due
A loan that is paid off in equal periodic payments
Amortized Loan
The annual compound rate that produces the same return as the nominal rate when something is compounded on a nonannual basis, providing the true rate of return
Effective Annual Rate
An annuity with an infinite life
Perpetuity
