Topic 2- Time Value of Money

Question 1

What is an asset and how do you value it?

Answer 1

It is a sequence of cash flows and to value it you have to value to sequence of CF

Question 2

What is the Future Value?

Answer 2

The value of an investment at the end of earning int for t period(s)

Question 3

What is the present value?

Answer 3

the value of an investment today

Question 4

$1 is worth more ____

Answer 4

now because you can invest it

Question 5

Interest rate is…

Answer 5

% of principal
rate which is charged for use of assets

Question 6

3 of what interest rates are made up of

Answer 6

uncertainty (risk) premium
inflation premium
time preference

Question 7

How does int rate relate PV and FV

Answer 7

converts one type of Cf to another

Question 8

Simple interest formula

Answer 8

SI = PV x (1+rt)

Question 9

Compound Interest formula

Answer 9

CI= PVx (1+r)^t
which is the int on int

Question 10

What do fluctuations of int rate mean for value of money put away now

Answer 10

increased int rate means put less money away now
decreased int rate need more money put away now