Chapter 3 (Time Value of Money) Flashcards
1
Q
earning interest on interest
A
compound interest
2
Q
- PV
- I
- N
- FVn
A
- initial deposit
- interest rate
- number of years (or periods)
- value at a specific future period
3
Q
What is the general equation for Future Value?
A
FVn = PV(1 + I)^n
4
Q
the more compounding periods there are per year, the ___ the future value.
A
higher
5
Q
this includes the effect of compounding thus making them higher than the nominal rate
A
annual percentage yield (APY)
6
Q
this excludes compounding making them appear lower than the true effective rate
A
annual percentage rate (APR)
7
Q
converting future cash flows to the present
A
discounting
8
Q
What is the general equation for Present Value?
A
PV = FVn (1/(1+I)^n) )
9
Q
What terms:
- cash flows begin one period from today
- cash flows begin immediately
A
- ordinary annuity
- annuity due
10
Q
a way of expressing the return or yield on an investment that has a future return
A
internal rate of return
