Chapter 6

Question 1

Future value

Answer 1

What an amount invested today (or a series of payments made over time) will be worth t a given time in the future using the compound interest method, which accounts for the time value of money

Question 2

Present value

Answer 2

The value today of a payment (or series of payments) to be received in the future, taking into account the cost of capital

Question 3

Time value of money

Answer 3

The concept that a dollar received today is worth more than a dollar received in the future

Question 4

Simple interest method

Answer 4

A method in which interest is calculated only on the original principal. The principal is the amount invested.

Question 5

Compound interest method

Answer 5

A method in which interest is calculated on both the original principal and on all interest accumulated since the beginning of the investment time period

Question 6

Annuity

Answer 6

A series of equal payments made or received at regular time intervals

Question 7

Opportunity cost

Answer 7

Proceeds lost by forgoing other opportunities