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22 Cards in this Set
- Front
- Back
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annual percentage rate (APR)
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The stated annual rate calculated by multiplying the periodic rate by the number of periods in one year.
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annual percentage yield (APY)
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The annual rate of interest actually earned reflecting the impact of compounding frequency. The same as the effective annual rate.
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annuity
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A stream of equal periodic cash flows.
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annuity due
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An annuity for which the payments occur at the beginning of each period.
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compound interest
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Interest earned both on the principal amount and on the interest earned in previous periods.
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discounting
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Describes the process of calculating present values.
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effective annual rate (EAR)
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The annual rate of interest actually paid or earned, reflecting the impact of compounding frequency. Also called the true annual return.
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future value
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The value of an investment made today measured at a specific future date using compound interest.
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Gordon growth model
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The valuation model, named after Myron Gordon, that views cash flows as a growing perpetuity.
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growing perpetuity
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An annuity promising to pay a growing amount at the end of each year forever
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loan amortization
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A borrower makes equal periodic payments over time to fully repay a loan.
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loan amortization schedule
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Used to determine loan amortization payments and the allocation of each payment to interest and principal.
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mixed stream
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A series of unequal cash flows reflecting no particular pattern.
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ordinary annuity
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An annuity for which the payments occur at the end of each period.
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perpetuity
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A level or growing cash flow stream that continues forever.
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present value
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The value today of a cash flow to be received at a specific date in the future, assuming an opportunity to earn interest at a specified rate.
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principal
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The amount of money on which interest is paid.
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quarterly compounding
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Interest compounds four times per year.
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semiannual compounding
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Interest compounds twice a year.
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stated annual rate
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The contractual annual rate of interest charged by a lender or promised by a borrower.
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time line
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A graphical presentation of cash flows over a given period of time.
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time value of money
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The financial concept that recognizes the fact that a dollar received today is more valuable than a dollar received in the future.
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