6470368
Description
Flashcards by Linzy Packard, updated more than 1 year ago
|
Created by Linzy Packard
over 7 years ago
|
|
| Question | Answer |
| What is a Time Line? | A tool used in time value analysis; a graphical representation used to show the timing of cash flows |
| What is Future Value (FV)? | The amount to which a cash flow (or series of cash flows) will grow over a given period of time at a given interest rate. |
| What is Present Value (PV)? | Value today of a future cash flow (or series). |
| What is Compounding? | The arithmetic process of determining the final value of a cash flow when compound interest is applied. |
| What is compound interest? | Interest earned of prior interest. |
| What is Simple Interest? | When interest is not earned on prior interest. |
| All other terms being equal, a shorter compound period yields... | higher returns. |
| Which is better, a present dollar or a future dollar? Why? | The present value of a dollar is better, because money in hand now can be invested to earn future returns. |
| What is the difference between compound interest and simple interest? | Compound interest earns interest on prior earned interest. Simple interest only earns interest on the principle. |
| What is opportunity cost? | Rate of return you could earn on an alternative investment of similar risk. |
| What is discounting? | The process of finding the present value of a cash flow or series of cash flows; it is the opposite of compounding. |
| What is the formula for Future Value (FV)? | PV*(1+I)^n |
| What is the formula for Present Value? | FV/(1+I)^n |
| How is discounting related to compounding? | Discounting is the process of finding the present value of a future value. It is the reverse of compounding. |
| How are the future value and present value equations related? | Find present value and future value are opposites of each other, so the equation for present value is the equation for future value solved for present value. |
| How does to present value of a future payment change as the time to receipt is lengthened and as the interest rate increases? | As the length of time and interest rate increases, the more money an investment generates, so the present value required to reach the same future value decreases. |
| What is the Rule of 72? | The Rule of 72 is a method for estimating an investment's doubling time. 72/Interest Rate. |
| What is an annuity? | A series of equal payments at fixed intervals for a specified number of periods. |
| What is an Ordinary (Deferred) Annuity? | An annuity whose payments occur at the end of each period. |
| What is an Annuity Due? | An annuity whose payments occur at the beginning of each period. |
| True of False: Financing a purchase with a load that requires scheduled payments of the same amount for a fixed period of time is considered an annuity. | True |
| True or False: An annuity due is one in which payments or receipts occur at the beginning of each period. | True |
| Why would you prefer to receive an annuity due for $10,000 per year for 10 years than an otherwise similar ordinary annuity? | Because with an annuity due, each payment is shifted to the left by one year. You will receive one additional period's interest with an annuity due. |
Want to create your own Flashcards for free with GoConqr? Learn more.