Chapter 5 Flashcards
(7 cards)
1
Q
TMV (time value of money)
A
the difference in value between a dollar in hand today and a dollar promised in the future; a dollar today is worth more than a dollar in the future
2
Q
Future value (FV)
A
the value of an investment after it earns interest for one or more periods
3
Q
how to compute FV
A
principal + interest earned
FV - PV (1 + i)^n
4
Q
FV/PV formula
A
A = P(1 + r/n)^nt
A = FV
P = PV
r = rate (%)
n = when its compounded (annually, bi-anually etc)
t = time period
5
Q
present value
A
present value or principal
6
Q
how to compute present value
A
FV/(1 + i)
7
Q
compounding
A
- process of converting the initial amount into a future value
interest is credited to existing principal
