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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 risk-free rate nominal risk-free rate = real risk-free rate + expected inflation rate Securities types of risk: Default risk, Liquidity risk, Maturity risk. real risk-free rate is a theoretical rate on a single-period 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 risk-free rate= real risk-free 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