CPCU 540 Ch. 6 Flashcards
The value that an amount today will be worth at a certain point in the future
Future value
Interest earned only on the original amount invested
Simple interest
Interest earned on the original amount invested plus previously earned interest
Compound interest
The quoted annual rate of interest that does not take account of the frequency of compounding
Stated interest rate
The rate of interest that reflects the effects of compounding more than once a year
Effective annual interest rate
The value of money that will be received in the future
Present value
The process of calculating the present value of a future amount
Discounting
The rate of return used in determining the present value of a future sum
Discount rate
A series of fixed payments made on specified dates over a set period
Annuity
A series of equal periodic payments made at the end of each period
Ordinary annuity
A series of equal periodic payments made at the beginning of each period
Annuity due
A series of fixed payments made on specified dates over an indefinite period
Perpituity
The present value of all future net cash flows (including salvage value) discounted at the cost of capital minus the cost of initial investment, also discounted at the cost of capital
Net present value (NPV)
