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25 Cards in this Set
- Front
- Back
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Time Line
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An important tool used in the time value analysis; it is a graphical representation used to show the timing of cash flows.
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Furture Value
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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.
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Present Value
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The value today of a future cash flow or series of cash flows.
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Compounding
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The arithmetic process of determining the final value of a cash flow or series of cash flows when compunded interest is applied.
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Compund Interest
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Occurs when interest earned on prior period's interest.
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Simple Interest
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Occurs when interest is not earned on interest.
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Opportunity Cost
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The rate of return you could earn on an alternative investment of similar risk.
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Discounting
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The process of finding the present value of a cash flow or a serioes of cash flows; discounting is the reverse of compounding.
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Annuity
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A series of equal payments at fixed intervals for specified number of periods.
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Ordinary (Deferred) Annuity
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An annuity whose payments occur at the end of each period.
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Annuity Due
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An annuity whose payments occur at the beginning of each period.
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FVA subscript n
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The future of annuity over N periods.
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PVA subscript n
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The present value of an annuity of N periods.
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Consol
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A perpetual bond issued by the British government to consolidate debts; in general, any perpetual bond.
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Perpetuity
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A stream of equal payments at fixed intervals expected to continue forever.
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Uneven (Nonconstant) Cash Flows
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A series of cash flows where the amount varies from one period to the next.
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Payment (PMT)
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This term designates equal cahs flows coming in regular intervals.
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Cash Flow (CFt)
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This term designates a cash flow that's not part of an annuity.
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Annual Compounding
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The arithmetic process of determining the final value of a cash flow or series of cash flows when interest is added once a year.
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Semiannual Compounding
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The arithmetic process of determining the final value of a cash flow or series of cash flows when interest is added twice a year.
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Nomial (Quoted or stated) Interest Rate, Inom
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The contracted or quoted, or stated interest rate.
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Annual Percentage Rate (APR)
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The periodic rate times the number of periods per year.
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Effective (Equivalent) Annual Rate (EEF% or EAR)
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The annual rate of interest actually being earnedd, as opposed to the quoted rate. Also called the "equivalent annual rate".
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Amortized Loan
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A loan that is repaid in equal payments over its life.
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Amortization Schedule
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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.
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