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16 Cards in this Set
- Front
- Back
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Time value of money |
Money invested today will be worth more in the future. Money can be invested today to earn interest and grow to a larger dollar amount in the future. |
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Interest |
Rent paid for the use of money for some period of time. Is the amount of money paid or received in excess of the amount borrowed or lent Could be expressed as a rate at which money will grow. |
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Simple Interest |
Computed by multiplying an initial investment by the applicable interest rate and the period of time for which the money is used. |
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Compound Interest |
Includes interest not only on the initial investment but also on the accumulated interest in previous periods. Results in increasingly larger interest amounts for each period of the investment. Interest amount increases with each period. The more periods, the more compounding. Thus, there will be a higher total interest amount with more compounding periods. |
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Effective Rate |
Actual rate, which is increased by more rapid compounding. Rate at which money will actually grow during a full year. |
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Future value(FV) of a single amount |
The amount of money that a dollar will grow to at some point in the future. Equation: FV= PV(1+i)^n |
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Present Value(PV) of a single amount |
Is today's equivalent of a particular amount in the future. |
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Monetary Assets |
Include money and claims to receive money, which has a fixed or determinable amount. |
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Monetary Liabilities |
Obligations to pay amounts of cash, which is fixed or determinable. |
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Annuity |
Series of cash flows where the same amount is paid or received each period. |
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Ordinary annuity |
Annuity where the periodic cash flows occur at the end of the period. |
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Annuity due(annuity in advance) |
Annuity where cash flows occur at the beginning of each period. |
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FV of an ordinary annuity |
last payment will not earn any interest |
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FV of an annuity due |
last cash payment will earn interest. |
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PV of annuity due |
No interest needs to be removed from first payment |
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Deferred annuity |
First cash flow occurs more than one period after the agreement date. Inception of annuity is deferred beyond a single period. |
