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40 Cards in this Set
- Front
- Back
Time Value of Money
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the principles and computations used to revalue cash payoffs at different times so they are stated in dollars of the same period; used t convert dollars from one time period to those of another time period.
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Cash Flow Time Line
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an important tool used in time value of moeny analysis: it is graphical representation used to show the timing of cash flows.
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Outflow
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a payment or disbursement of cash for expenses, investments, and so forth.
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Inflow
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a receipt of cash from an investment, an employer, or other sources.
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Compounding
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the process of determining the value of a cash flow or series of cash flows some time in the future when compund interest in applied
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Future Value (FV)
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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 compounding at a given interest rate.
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Compounding interest
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interest earned on interest that is reinvested
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Opportunity Cost Rate
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the rate of return in the best available alternative investment of equal risk
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Present Value (PV)
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the value today- that is, current value - of a future cash flow or series of cash flows.
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Discounting
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the process of determining the present value of a cash flow or series of cash flows received (paid) in the future; the reverse of compounding.
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Time Value of Money
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the principles and computations used to revalue cash payoffs at different times so they are stated in dollars of the same period; used t convert dollars from one time period to those of another time period.
|
|
Cash Flow Time Line
|
an important tool used in time value of moeny analysis: it is graphical representation used to show the timing of cash flows.
|
|
Outflow
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a payment or disbursement of cash for expenses, investments, and so forth.
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Inflow
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a receipt of cash from an investment, an employer, or other sources.
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Compounding
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the process of determining the value of a cash flow or series of cash flows some time in the future when compund interest in applied
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Future Value (FV)
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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 compounding at a given interest rate.
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Compounding interest
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interest earned on interest that is reinvested
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Opportunity Cost Rate
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the rate of return in the best available alternative investment of equal risk
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Present Value (PV)
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the value today- that is, current value - of a future cash flow or series of cash flows.
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Discounting
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the process of determining the present value of a cash flow or series of cash flows received (paid) in the future; the reverse of compounding.
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Annuity
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a series of payments of an equal amount at a fixed, equal intervals for a 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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FVAn -
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Future Value of an ordinary annuity over n periods
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PVAn
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the present value of an ordinary annuity with n payments.
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PVA (DUE)n
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The Present Value of an annuity due over n periods.
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Perpetuity
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a system of equal payments expected to continue forever.
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Consol
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A perpetual bond issued by the British government to consolidate past debts; in general, any perpetual bond.
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Uneven Cash Flow Stream
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A series of cash flows in which the amount varies from one period to the next.
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Payment (PMT)
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the term designates constant cash flows-that is, the amount of annuity payment.
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Cash Flow (CF)
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the term designates cash flows in general, including uneven cash flows.
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Terminal Value
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the future value of a cash flow stream.
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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 paid 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 paid twice per year.
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Amortized Loan
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a loan that requires equal payments over its life; the payments include both interest and repayment of the debt.
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Amortization Schedule
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a schedule showing precisely how a loan will be repaid. It gives the required payment on each payment date and a breakdown of the payment, showing how much interest and how much is repayment of principal.
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Simple, or quoted rate, Ksimple
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the rate quoted by borrowers and lenders that is used to determine the rate earned per compounding period (periodic rate).
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Periodic Rate, Kper
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the rate charged by a lender or paid by a borrower each interest period (e.g. monthly, quarterly, semiannually, etc.)
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Annual Percentage Rate, APR
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The rate reported to borrowers- the periodic rate times the number of periods in the year; thus, interest compounding is not considered.
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Effective Annual Rate, EAR (annual precentage yield, APY)
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the annual rate earned or paid considering interest compounding during the year- that is, the annual rate tht equates to a given periodic rate compounded for periods during the year.
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