Fin 201 Ch.4 Time Value of Money
A schedule or table that reports the amount of principal and the amount of interest that make up each payment made to repay a loan by the end of its regular term
Amortization schedule (table)
A type of security that is frequently used in mortgages and requires that the loan payment contain both interest and loan principal
Amortized loan
A value that represents the interest paid by borrowers or earned by lenders, expressed as a percentage of the amount borrowed or invested over a 12-month period
Annual percentage rate
A series of equal cash flows that occur at the BEGINNING of each of the equally spaced intervals (such as daily, monthly, quarterly, and so on)
Annuity due
The process of determining the present value of a cash flow or series of cash flows to be received or paid in the future
Discounting
Time value of money calculations can be solved using a mathematical equation, a financial calculator, or a spreadsheet. Which of the following equations can be used to solve for the present value of a lump sum?
FV / (1+r)^n
The name given to the amount to which a cash flow, or a series of cash flows, will grow over a given period of time when compounded at a given rate of interest
Future value
A rate that represents the return on an investor's best available alternative investment of equal risk
Opportunity cost of funds
A series of equal cash flows that occur at the end of each of the equally spaced intervals (such as daily, monthly, quarterly, and so on)
Ordinary annuity
Time value of money calculations can be solved using a mathematical equation, a financial calculator, or a spreadsheet. Which of the following equations can be used to solve for the present value of an ordinary annuity?
PMT x {1 - [1 / (1+r)n1+rn]} / r
A series of equal (constant) cash flows (receipts or payments) that are expected to continue forever
Perpetuity
The concept that states that the timing of the receipt or payment of a cash flow will affect its value to the holder of the cash flow
Time value of money