chapter 4- TVM
a dollar today is worth more than a dollar at some other time in the future
time value of money
allows you to analyze different alternatives such as investments and rates of return
time value of money
if future values grow,
present values shrink
the growth of a dollar amount through time via reinvestment of interest earned
compounding
the relationship between interest rates and the future value of a lump sum
direct
the relationship between the number of compounding periods and future value
direct
what is the relationship between future value and the number of compounding periods
direct if n goes up then FV goes up
what is the relationship between the future value and the rate
direct if r goes up then FV goes up
the calculation of the present value of some future amount
discount
the rate used to calculate the present value of future cash flows
discount rate
process of determining the value today of an amount to be recieved in the future
discounting
the amount of money an investment will grow to over some period of time at some given interest rate
future value
the relationship between present value of a lump sum and both the discount rate and the number of discount periods
indirect
what is the relationship between present value and the discount rate
inverse if r goes up PV goes down
what is the relationship between present value and the number of discounting periods
inverse if t goes up PV goes down
the current value of future cash flows discounted at the appropriate discount rate
present value
if future value rises
present value falls