Week 4 Flashcards
In very basic, what does time value of money allow?
It allows you to know the value of your investment is worth
In very basic, what is the principle idea behind Time value of money?
The principle basic idea is that over time, money increases in value for example due to interest
In basic what is (FV) with a simple example?
Future Value (FV) it allows you to know the value of you investment in the future either one or multiple periods of time.
Year 0 £100 at 10%
Year 1 £100 + 10% = £110
Label V1=V0(1+r)
FV=PV(1+r)
The V1 is Vt, value at time like V1, V2 year 1 year 2 value at year
FV is future value
PV is present value
r is interest rate
What is compounding?
Money earned by having interested on the initial interest.
A bank says 10% on £100, you get £110 but compounding you earn 10% of that £110 so you get £121
What is interest on interest?
Interest on interest is the result of you compounding interest from interest money.
£100 at 10% is £110, the compounding 10% of £110 is £11 which is your interest on interest
What is compound interest?
It refers to the type of compound interest such as compounding interest
What is simple interest?
Yo my hoodlum, it refers to £100 at 10% obvs the interest rate is 10% so simple interest
What is (SI) mean and its formula?
Simple interest (SI)
SI = P x IR
Interest = principle x interest rate
What can you use to show a timeline of cash flows?
Multi period investing timeline
