Flashcards
Chapter 5 Cue Cards
Flashcards do conjunto (22)
- 1Present amount of money ________ to Future Value when it is able to earn interestGrow
- 2Two kinds of interestSimple
Compound - 3Simple Interest: $1000 at 5%/year for 10 years500
(PV*%*t) - 4Compound Interest $1000 at 5%/year for 10 years1628.89
PV x (1+r) ^ t - 5Formula for FVPV x (1+r) ^ t
- 6Formula for PVFV after t periods / (1+r) ^ t
- 7How do you find Discount Rate when calculating interest?Found using discount factor or financial calculator.
- 8Multiple Cash Flows Calculation $1000 today $1200 in a year $1400 in two years 8% interest How much in account after 3 years?Calculate it.
- 9What is an annuityCash flows of equal amount every period for limited number of periods
- 10What is a perpetuityCash flows of equal amounts every period for infinity (Unlimited periods)
- 11PV of a Perpetuity FormulaPV Perpetuity = C/r
- 12PV of t-period AnnuityC x [ (1/r) - ((1/(r(1+r)^t)) ]
(Part in brackets is Annuity Factor) (PVA) - 13FV of a t-period annuity[ C x ((1+r)^t -1) ] / r
(Part in brackets without C is Future Value Annuity Factor) (FVA) - 14Ordinary Annuity vs Annuity DueOrdinary is after 1 period,
Annuity Due is right away. - 15PV of Growing PerpetuityPV Perpetuity = C / (r-g)
- 16PV of Growing AnnuityPV Annuity Growth =
[C/r-g] x ( 1-( ((1+g)^t) / (1+r) ) ) - 17Inflation: Rate at which prices as a whole are increasing (T/F)True dat
- 18Nominal Interest Rate: Rate at which money invested _________Grows
- 19Real Interest Rate: Rate at which purchasing power of an investment _______________Increases
- 20Real Rate = Nominal - Inflation1+ Real = 1+ Nominal / 1+ Inflation
- 21Effective Annual Interest Rate (EAR)Interest rate that is annualized using compound interest
- 22Annual Percentage Rate (APR)Interest rate that is annualized using simple interest
(They do not recognize the effect of compounding)