Econ Ch 14
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The original amount of money invested
The use of money to make more money in the future
Amount of money repaid to the lender in excess of principle
Interest Rate r
Interest payment (usually per year) divided by the principle
The total value that the principal will produce at a defined future time when invested at rate r
- The amount that, if invested at rate r, will produce the future value after the defined rate of time
- The process of interest payments increasing exponetially
Describes how much money a person must invest now to achieve a specific value in the future (the reverse of compounding)
Net Present Value (NPV)
- The present value of the benefits less the present value of the costs.
Annuity/ Annual Value (AV)
- A payment that is made every year for a specified period
- Formula for present value of t payments starting next year is PV=[(1+r)^t-1/r(1+r)^t] x AV
An investment that pays a fixed annual amount forever
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