Time Value of Money Tools Flashcards
Give the equation for the use of time value of money table factors.
PV or FV = Amount x Table Factor (Given any two of the three items above, the third can be determined.)
Define the “present value” of $1.
Value now (at present) of a single amount to be received in the future.
The amount to be receive in the future is discounted using an interest rate to get the present value of that amount.
Define the “future value” of $1.
Value at some future date of a single amount invested now.
It is the amount that will accumulate as a result of compounding of interest on the single amount invested at the present.
Define the “present value” of an ordinary annuity.
Value now of a series of equal amounts to be received at the end of equal intervals over some future period.
Equal amounts to be received at the end of a number of equal periods are discounted using an interest rate to get the present value of those amounts.
Define “future value” of an ordinary annuity.
Value at some future date of a series of equal amounts to be invested at the end of equal intervals over some period of time.
It is the amount that will accumulate as a result of the amounts invested at the end of each period and the compounding of interest on those amounts.
Define the “future value” of an annuity due.
Value of some future of a series of equal amounts to be invested at the beginning of equal intervals over some period of time.
It is the amount that will accumulate as a result of the amounts invested at the beginning of each period and the compounding of interest on those amounts.
Distinguish between an “ordinary annuity (also called an annuity in arrears)” and an “annuity due (also called an annuity in advance).”
Ordinary annuity: Series of equal amounts received or paid at the end of each equal period.
Annuity due: Series of equal amounts received or paid at the beginning of each equal period.
