Time value of money Flashcards
1
Q
Simple interest is calculated by:
A
principal * interest rate * number of periods
2
Q
What is inflation?
A
The price of goods and services increases over time, this reduces the purchasing power of your money
3
Q
What is risk?
A
You don’t know for sure that you will receive the money
4
Q
What is direct use?
A
You can spend the money immediately
5
Q
One euro today is worth more than one euro tomorrow because of:
A
- Inflation
- Risk
- Direct use
6
Q
What are annuities?
A
A series of consecutive payments/ receipts over a number of periods.
7
Q
Annuities always have:
A
- An equal amount of cash each interest period
- Interest periods of equal length
- An equal interest rate each interest period
8
Q
What is annuity due?
A
Payments occur at the ent of each year
9
Q
What is a perpetuity?
A
An annuity that goes on forever
