Time Value of Money (TVM) Flashcards
Time Value of Money (TVM)
How the value of money changes over time due to inflation and interest
Inflation
decrease in the purchasing power of money
Interest
Remuneration for investing or loaning money
Compound interest
interest earned on interest
SMART principle
family goals should be Specific, Measurable, Attainable, Relevant, Timebound
Investment
A current commitment of your money in the expectation of reaping future returns
Present value (PV)
Current value of money
Principal
The original amount of money borrowed or invested (generally synonymous with present value).
Interest rate (I)
The rate you will receive for investing at a specified compounding period for a specified period of time (generally expressed in percent per year).
Nominal return
The return on an investment before the impact of federal, state, and local taxes has been taken into account.
After-tax return
The return on an investment after the impact of federal, state, and local taxes has been taken into account.
Real return
The rate of return on an investment after the impacts of taxes and inflation are taken into account
Compounding periods (N)
The frequency with which interest is applied to an investment
Payment (PMT)
A periodic amount invested or received during the life of the investment (e.g., monthly payment, annual disbursement, dividend, etc.)
Future value (FV)
The monetary value of an investment at some point in the future
