Simple/compound interest and present/future value
Ordinary annuity
A series of equal payments at equal intervals of time made at the end of each compounding period.
Annuity
A stream of cash flows of an equal amount and made at a regular interval of time.
Future value of ordinary annuity
FV = PMT x [(1+i)^n - 1] / i
Future value of single amount
FV = PV (1+i)^n
Time value of money
One dollar received today is worth more than one dollar received tomorrow because you can invest the dollar today and earn a return on that investment. The time value of money mathematics quantify the value of a dollar through time (present and future value calculations).
Present value of single amount
PV = FV (1+i)^-n
Present value of ordinary annuity
PV = PMT x [1 - (1+i)^-n] / i
Present value
The estimated current worth of a future amount of money discounted at a market rate of interest.
Future value
The estimated future worth of an amount of money today, given a specified interest rate.
Simple interest
The interest earned on the original principal only.
Compound interest
The interest earned on the original principal plus all interest earned on the interest that has accumulated over time.
Compounding period
The length of the time period that elapses before interest compounds, for example, a quarter in the case of quarterly compounding.
