Investigating Technology

Years x interest payments (months)

How do you calculate Nper (# of pay periods)

Interest Rate - Interest rate per period ex. %6 / 4 (for quarterly payments)

How do you calculate Rate?

Interest

If we understand opportunity cost we can translate $1 in the future into its equivalent today by discounting using a "discount" or __________ rate.

$665.30

If you borrow $100,000 at 7% fixed interest for 30 years in order to buy a house, what will be your monthly house payment?

$3506.11

If you invest $1,000 at the beginning of the next 3 years at %8, how much would you have at the end of year 3?

Rate

Interest rate per period

Interest Rate

The amount charged by a lender that a borrower must pay for using the lender's principal (money) is referred to as an ________. In other words, this is the extra amount beyond the premium (payment) that the borrower must repay the lender.

NPV (Net Present value)

The difference between the present value of cash inflows and the present value of cash outflows over a period of time is referred to as...

TVM (Time Value of Money)

The principle of finance that states that a dollar in your hand today is worth more than a dollar you will receive in the future because a dollar in hand today can be invested to turn into more money in the future.

Payment

The transfer of a good , service, financial asset/instrument in exchange for another form of good, service or financial asset/instrument that is agreed upon by all parties involved in a transaction.

FV (Future Value)

The value of an asset at a specific date is measured by calculating the nominal future sum of money is "worth" at a specified time in the future. This is accomplished by calculating.

Nper (# of payment periods) FV (future value) PV (present value) Pmt (anuity payments)

What 4 things are used in interest rate calculation?

If NPV is positive, accept if NPV is negative, reject

What two things are true about Net Present Value?

Ordinary annuity

a series of equal payments made at the end of consecutive periods over a fixed length of time. Payments isn an annuity can be made as often as every week. Most of the time _________ __________ are made monthly, quarterly, semi-annually or annually.

PV

present value

effective interest rate

rate established when bonds are issued that remains constant in each interest period

Opportunity Costs

the benefits an individual, invest or business misses out on when choosing one alternative over another

NPER

the total number of payment periods

Beginning of month savings (equal $) Life/Home owners Insurance Apartment Rent

which of the following are annuities due used for?

Type

Cash flows at the end of period (0) or begin of period (1)

The effective interest rate increases

EFFECT returns the annual effective interest rate. We know that: $1,000 invested for one year at %10 - Annual compounding = $100.00 of interest and an effective interest rate of %10. What happens if the number of compounding periods is increased? For example, if the number of compounding periods is increased from annual compounding (1 period) to monthly (12 periods) compounding?

-$353.14

If you receive $1,000 fifteen years from now, what is the PV of that $1,000 if you use a 7% interest or discount rate?

Annuity

A contract between an individual and a company in which you make a lump sum payment or series of payments and, in return, receive regular disbursements beginning either immediately or more commonly at some point in the future is called an _________.

Present Value

Also referred to as discounted value, ________ measures the worth of a future amount of money or stream of payments in today's dollars adjust for interest and inflation

PMT

Any annuity payments (equal amounts of cash received)