Session 17: TVM Flashcards
The rule of 72 works for what kind of payments
Single payments
Multiplying over a number of time periods by a number greater than 1 is
Compounding
Known to unexpected is
Compounding
Interest to be paid only on the original principal invested. Interest is not reinvested and no interest is earned on interest
Simple interest
Accumulating interest in an investment for more than one period and reinvesting the interest. Interest is earned in interest
Compound Interest
Shortening the compounding period (more frequent compounding) does what to effective annul rate
Increase it (good for imvestors)
Interest earned is usually
Taxable
After tax rate
Before tax rate (1-tax rate)
Use Roth IRA when you have high
Rate of return
As the discount rate falls, PV
Increases
As the discount rate increases, PV decreases
Discounting is the same concept as multiplying a future value by a factor that is
Less than one
Discount rates are generally what kind of numbers
Positive
Present value is used in
Calculating loan and lease payments
Estimating the value of stocks and bonds
Making major investment decision
When interest rates go up bond values
Go down
When interest rates go down stock prices
Go up
Zero coupon bond means
Only one payment when the bond matures
A sequence of equal multiple payments
Annuity
