Time Value of Money Flashcards
1
Q
What is the basic meaning of the time value of money
A
- Money now is worth more than money in the future
2
Q
What is the compound interest formula
A
- FV = PV(1+r)^n
- IF interest is paid more often than annually - divide the rate by number of payments and increase n
3
Q
How do you find APR/AER
A
- (1+r/n)^n - 1
- x100 to get %
4
Q
What is the Present Value Formula (discounted cashflows)
A
- PV = FV/(1+r)^n
5
Q
What is the formula for Accumulated savings FV ?
A
FV = P x [(1+r)^n - 1 / r]
if the money is paid at start of period rather than the end:
FV = P x {[(1+r)^n - 1 / r] -1}
6
Q
What is the Annuity formula? (to calc annuity purchase price)
A
A = P x [1-(1+r)^-n / r]
7
Q
How do you calculate Real Returns
A
Real = Nominal returns - inflation rate
8
Q
A
