Finance 5

Perpetuity?

A cash flow stream that is generated by a share of preferred stock that is expected to pay dividends every quarter indefinitely.

Time Value of Money?

A concept that maintains that the owner of a cash flow will value it differently, depending on when it occurs.

Opportunity Cost of Funds?

A rate that represents the return on an investor's best available alternative investment of equal risk.

Amortization Schedule?

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.

Annuity Due?

A series of equal cash flows that occur at the beginning of each of the equally spaced intervals (Days, month, year)

Ordinary Annuity?

A series of equal cash flows that occur at the end of each of the equally spaced intervals. (Days, months, years)

Amortized Loan?

A type of security that is frequently used in mortgages and requires that the loan payment contain both interest and loan principal.

Annual Percentage?

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.

Present Value of an Annuity?

PMTx(1-(1/(1+r)^n)/r) x (1+r)

Future Value?

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.

Discounting?

The process of determining the present value of a cash flow or series of cash flows to be received or paid in the future.