Financial Edge - Financial Math Flashcards
1
Q
What is the link between present and future value?
A
Present will be less than the nominal amount of the future value, because you are accounting for the opportunity cost
2
Q
What is a perpetuity?
A
Repeated payments forever, with no ending date
3
Q
What is the formula for the present value of a perpetuity that does not grow?
A
PV = Payment / discount rate
4
Q
What is the formula for the present value of a perpetuity that grows?
A
PV = Payment / (discount rate - growth rate)
5
Q
What is an annuity?
A
A regular payment, but only for a finite period - i.e. there is an end date to it
6
Q
Annuity formula?
A
Really complicated - look it up
7
Q
How to define yield?
A
Rate of return that you are going to achieve
