Fin Chpt 9 Terms

Front 1

Time Value of Money

Back 1

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

Back 2

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

Back 3

a payment or disbursement of cash for expenses, investments, and so forth.

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Inflow

Back 4

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)

Back 9

the value today- that is, current value - of a future cash flow or series of cash flows.

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Discounting

Back 10

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.

Front 11

Time Value of Money

Back 11

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.

Front 12

Cash Flow Time Line

Back 12

an important tool used in time value of moeny analysis: it is graphical representation used to show the timing of cash flows.

Front 13

Outflow

Back 13

a payment or disbursement of cash for expenses, investments, and so forth.

Front 14

Inflow

Back 14

a receipt of cash from an investment, an employer, or other sources.

Front 15

Compounding

Back 15

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

Front 16

Future Value (FV)

Back 16

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

Back 17

interest earned on interest that is reinvested

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Opportunity Cost Rate

Back 18

the rate of return in the best available alternative investment of equal risk

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Present Value (PV)

Back 19

the value today- that is, current value - of a future cash flow or series of cash flows.

Front 20

Discounting

Back 20

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.