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25 Cards in this Set
 Front
 Back
Time Line

An important tool used in the time value analysis; it is a graphical representation used to show the timing of cash flows.


Furture Value

The amount to which a cash flow or series of cash flows will grow over a given period of time when compunded at a given interest rate.


Present Value

The value today of a future cash flow or series of cash flows.


Compounding

The arithmetic process of determining the final value of a cash flow or series of cash flows when compunded interest is applied.


Compund Interest

Occurs when interest earned on prior period's interest.


Simple Interest

Occurs when interest is not earned on interest.


Opportunity Cost

The rate of return you could earn on an alternative investment of similar risk.


Discounting

The process of finding the present value of a cash flow or a serioes of cash flows; discounting is the reverse of compounding.


Annuity

A series of equal payments at fixed intervals for specified number of periods.


Ordinary (Deferred) Annuity

An annuity whose payments occur at the end of each period.


Annuity Due

An annuity whose payments occur at the beginning of each period.


FVA subscript n

The future of annuity over N periods.


PVA subscript n

The present value of an annuity of N periods.


Consol

A perpetual bond issued by the British government to consolidate debts; in general, any perpetual bond.


Perpetuity

A stream of equal payments at fixed intervals expected to continue forever.


Uneven (Nonconstant) Cash Flows

A series of cash flows where the amount varies from one period to the next.


Payment (PMT)

This term designates equal cahs flows coming in regular intervals.


Cash Flow (CFt)

This term designates a cash flow that's not part of an annuity.


Annual Compounding

The arithmetic process of determining the final value of a cash flow or series of cash flows when interest is added once a year.


Semiannual Compounding

The arithmetic process of determining the final value of a cash flow or series of cash flows when interest is added twice a year.


Nomial (Quoted or stated) Interest Rate, Inom

The contracted or quoted, or stated interest rate.


Annual Percentage Rate (APR)

The periodic rate times the number of periods per year.


Effective (Equivalent) Annual Rate (EEF% or EAR)

The annual rate of interest actually being earnedd, as opposed to the quoted rate. Also called the "equivalent annual rate".


Amortized Loan

A loan that is repaid in equal payments over its life.


Amortization Schedule

A table showing precisely how a loan will be repaid. It gives the required payment on each payment date and a breakdown of te payment, showing how much interest is repayment of principal.
