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### 28 Cards in this Set

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 Later money on a time line: Future value The rate used to calculate the present value of future cash flows: Discount rate What happens in a cash inflow? You receive money (+) Answers the question, "How much do I have to invest today to have some amount in the future?" Present value The "exchange rate" between earlier money and later money: Interest rate When a deposit or investment earns interest on interest previously received, it is said to be earning _____. Compound interest For a given time period, the higher the interest rate, the higher the _____. Future value What is the effect of compounding simple interest? Interest is NOT reinvested What are the 5 different names for the interest rate? 1) discount rate 2) exchange rate 3) cost of capital 4) opportunity cost of capital 5) required return For a given interest rate the longer the time period, the _____ the present value. Lower What is the effect of compounding compound interest? Interest IS reinvested Finding the present value of some future amount: Discounting Earlier money on a time line: Present value What happens in a cash outflow? You pay money (-) For a given time period, the _____ the interest rate, the _____ the future value. Higher, higher The effects of _____ is small for a small number of periods, but increases as the number of periods increase. Compounding Period interest rate: r The period interest rate times the number of periods in the year: Simple rate (I/YR) For a given interest rate the longer the time period, the lower the _____. Present value Used to solve the implied interest rate for an investment: Discount rate Number of payment periods: N The simple rate of interest divided by the number of periods in a year: Period rate (r) For a given interest rate the longer the time period, the _____ the future value. Higher The effects of compounding get larger as: The number of periods increase For a given time period, the higher the interest rate, the _____ the present value. Smaller Interest rate per payment period: r For a given interest rate the longer the time period, the higher the _____. Future value What must P/YR equal for I/YR to be the period rate? P/YR must equal 1