Chapter 5 Flashcards
Interest earned on both the initial principal and the interest reinvested from prior periods
compound interest
The rate used to calculate the present value of future cash flows.
discount rate
a dollar in hand today is worth more than a dollar promised at some time in the future
time value of money
discount rate
The rate used to calculate the present value of future cash flows.
simple interest
Interest earned only on the original principal amount invested.
compounding
The process of accumulating interest on an investment over time to earn more interest.
Calculate the present value of some future amount.
discount
Interest earned on the reinvestment of previous interest payments.
interest on interest
discount
Calculate the present value of some future amount.
The process of valuing an investment by discounting its future cash flows.
discounted cash flow (DCF) valuation
compound interest
Interest earned on both the initial principal and the interest reinvested from prior periods
present value (PV)
The current value of future cash flows discounted at the appropriate discount rate.
future value (FV)
the amount of money an investment will grow to over some period of time at some given interest rate. Financing for new, often high-risk ventures.
Interest earned only on the original principal amount invested.
simple interest
The process of accumulating interest on an investment over time to earn more interest.
compounding
