The Time Value of Money

Question 1

Capital

Answer 1

wealth in the form of money or other assets owned by a person or organization or available or contributed for a particular purpose such as starting a company or investing.

Question 2

Simple interest

Answer 2

Simple interest is interest calculated on the principal portion of a loan or the original contribution to a savings account.

Question 3

Simple interest is used frequently

Answer 3

Question 4

Computation of simple interest

Answer 4

Question 5

If 5000 were loaned for 5 years at a simple interest rate of 7%

per year, the interest earned would be?

Answer 5

Question 6

Compound interest

Answer 6

Compound interest is the interest on a loan or deposit that accrues on both the initial principal and the accumulated interest from previous periods.

Question 7

Compound interest reflects both the remaining principle and any accumulated interest

Answer 7

Question 8

Compound interest example

Answer 8

Question 9

illustration of simple vs compound interest

Answer 9

Question 10

Economic equivalence

Answer 10

Question 11

Cash flow diagrams defintion

Answer 11

Cash flow diagrams visually represent income and expenses over some time interval.

Question 12

Cash flow diagrams

graph

Answer 12

Question 13

we can apply compound interest formulas to ‘move’ cash flows along the cash flow diagram

Answer 13

Question 14

Pause and Solve 1

Answer 14

Question 15

There are interest factors for a series of end-of-period cash flows

Question 16

Pause and solve 2

Answer 16

Question 17

Answer 17

Question 18

Deferred annuities

Answer 18