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