time value of money Flashcards
1
Q
why most people prefer money now over money later
A
- inflation
- risk that entity promising you money does not pay later
- opportunity cost; use money to earn more later or consume it today
2
Q
by saving, lending, or investing, you..
A
- forego consumption of/access to money today
- should demand compensation for ‘delaying financial gratification’
3
Q
interest rate
A
- price to pay for someone else’s money
- expresses price of money today in terms of money in the future
4
Q
rules of time travel
A
- only compare values at same point in time
- to move cash flow forward, compound
- to move cash flow backwards, discount
5
Q
present value
A
what is receiving a benefit of FV worth today
6
Q
PV of annuity
A
- lump sum amount at time 0 that ‘equalled’ sum of future periodic repayments
- sum of all discounted cash flows over periods 1 through n
