Ch 6

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1. Opportunity Cost
Proceeds lost by forgoing other opportunities
2. Future Value (FV)
When an amount invested today will be worth at a given time in the future using the compound interest method, which accounts for the time value of money
3. Time Value of money
The concept that a dollar received today is worth more than a dollar received in the future
4. Simple interest method
A method in which interest is calculated only on the original principal. The principal is the amount invested
5. Compound interest method
A method in which interest is calculated on both the original principal and on all interest accumulated since the beginning of the investment time period
6. Future value table
Table of factors that shows the future value of a single investment at a given interest rate
7. Present Value (PV)
The value today of a payment to be received in the future, taking into account the cost of capital. (sometimes call discount rate).
8. Compounding
Converting a present value into its future value taking into account the time value of money. It is the opposite of discounting
9. Discounting
Converting future cash flows into their present value taking into account the time value of the money
10. Annuity
A series of equal payments made or received at regular time intervals
11. Future value of an annuity
What an equal series of payments will be worth at some future date using compound interest
12. Future Value Factor of an Annuity (FVFA)
A factor that when multiplied by a stream of equal payments equals the future value of that stream
13. Future value of an annuity table
Table of factors that shows the future value of equal flows at the end of each period, given a particular interest rate
14. Ordinary Annuity
A series of equal annuity payments made or received at the end of each period
15. Annuity Due
A series of equal annuity payments made or received at the beginning of each period
16. Present value of an annuity
What a series of equal payments in the future is worth today taking into account the time value of the money
17. Perpetuity
An annuity for an infinite period of time
18. Present Value Table
Table of factors that shows what a single amount to be received in the future is worth today at a given interest rate
19. Present value of an ordinary annuity table
Table of factors that shows the value today of equal flows at the end of each future period, given a particular interest rate
 Author: SummerXParadise ID: 260956 Card Set: Ch 6 Updated: 2014-02-09 05:16:08 Tags: H353 Folders: Description: H353 words Show Answers: