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28 Cards in this Set
 Front
 Back
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
