The Time Value of Money Flashcards
1
Q
Real risk-free rate
A
Single period on a return on risk-free security assuming zero inflation.
2
Q
Annuity
A
A finite set of level sequential cash flows.
3
Q
Ordinary Annuity
A
An annuity where the cash flows occur at the end of each compounding period.
4
Q
Annuity Due
Note: When dealing with annutity due problems, calculator needs to be switched to “BGN” mode.
A
An annuity where the periodic cash flows occur at the beginning of every period.
5
Q
Perpetuity
A
Never-ending series of level payments, where the payment occurs in the next period.
6
Q
The required rate of return
A
Sum of the nominal risk-free rate of return, the maturity premium, the default risk premium, and a liquidity premium.
7
Q
Nominal risk-free rate
A
Real risk-free rate + Inflation premium.
