the amount an investment is worth after one or more periods
compounding
the process of accumulating interst on an investment over time toe arn more interest
interest on interest
interest earned on the reinvestment of previous interest payments
compound interest
interest earned on both the initial principal and the interst reinvested from prior periods
simple interest
interst earned only on the orginal principal amount invested
present value (PV)
the current value of future cash flows discounted at the appropriate discount rate
discount
calculate the present value of some future amount
discount rate
the rate used to calculate the present value of future cash flows
discounted cash flow (DCF) valuation
calculating the present value of a future cash flow to determine its value today
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you've been saving up to buy the godot comany. the total cost will be 10 million. you currently have about 2.3 million. if you earn 5 percent on your money how long will you have to wait? at 16 percent how long must you wait?
were solving for the number of periods, N
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you estimate that you will need about 80,000 to send your child to college in eight years. you have about 35000 now. if you can earn 20 percent per year will you make it? and at what rate will you reach your goal?
solving for future value and I/Y
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you are considering a one year investment. if you put up 1250 you will get back 1350 what rate is this investment paying?