Chapter 6 Flashcards
Money can be invested today to earn interest and grow to a larger dollar amount in the future
Time Value of Money
“Rent” paid for the of money for some period of time
Interest
Computed by multiplying an initial investment times both the applicable interest rate and the period of time for which the money is used
Simple Interest
Interest computed by not only on the initial investment but also the accumulated interest in previous periods
Compound Interest
The actual rate at which money grows per year
Effective Rate
Amount of money that a dollar will grow to at some point in the future
Future Value (FV)
Today’s equivalent to a particular dollar amount in the future
Present Value (PV)
Money and claims to receive money, the amount of which is fixed or determinable
Monetary Assets
Obligations to pay amounts of cash, the amount of which is fixed or determinable
Monetary Liabilities
Cash flows occur at the end of each period
Ordinary Annuity
Cash flows occurring at the beginning of each period
Annuity Due
The first cash flow occurs more than the one period after the date the agreement begins
Deferred Annuity
