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14 Cards in this Set
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Lump sum

a single cash flow


present value

the value today of a cash flow to be received or paid in the future


future value

is the value in the future of cash flows received or paid today


Future value of lump sum equation

FV=PV(1+i)


Population

is the collection of all possible individuals


Sample

a portion or subset of a population that is used to estimate characteristics


Interpret interest rates

Equilibrium
interest rates are the required rate of return for a particular investment, in the sense that the market rate of return is the return that investors and savers require to get them to willingly lend their funds. Interest rates are also referred to as discount rates 

nominal riskfree rate

nominal riskfree rate = real riskfree rate + expected inflation rate


Securities types of risk:

Default risk, Liquidity risk, Maturity risk.


real riskfree rate

is a theoretical rate on a singleperiod loan that has no
expectation of inflation and dafault risk and liquidty risk and maturity risk 

real rate of return

an investor's increase in purchasing power (after adjusting for inflation).


nominal riskfree rate=

real riskfree rate + expected inflation rate


EAR ( time value of money)

effective annual rate
represents the annual rate of return actually being earned after adjustments have been made for different compounding periods. 

EAR ( time value of money) formula

EAR (1 + periodic rare)m  1
1 