Time Value of Money Flashcards
This is a financial concept that a sum of money in the present is worth more now than the same sum of money will be at a future date.
Time Value of Money
What is the time value of money sometimes referred to as?
Net Present Value (NPV) of Money
This is used for short-term loans and is determined by multiplying the interest rate by the principal by the number of period that elapse between payments.
Simple Interest
What are the two perspectives in applying the concept of time value of money?
Present Value
Future Value
This is known as discounting. It is a process of removing the interest factor in an amount to be received in the future and reduce or convert it to its value in the present.
Present Value Analysis
This is known in mathematics parlance as compounding. It is a process of
adding the interest factor in an amount received at present and increase or to convert it to its
value in the future.
Future Value Analysis
This can also be thought of as interest on interest and will make a sum grow at a faster rate than simple interest.
Compound Interest
When the payments are equal and are made at fixed intervals, the series is an __________
annuity
This is the value an investor is willing to pay for a security.
Market Value
This is an accountant’s view of the value of the security. It is the value of an investment following application of accounting principles.
Book Value
This represents the “true” or “real” value of a security, the amount which the
security should be selling. It is what the security is really worth, it cannot be directly observed
and must instead be estimated or calculated. It is normally referred to as the
“price”.
Intrinsic Value
This refers to income return on an investment.
Yield
This is described as “the yield rate that is based on market value.”
Current yield
This can be described simply as the “The percentage of profit the investor
earns from the time of investment until maturity stated in percentage per year.”
Yield to Maturity (YTM)
