# Econ Ch 14

 The flashcards below were created by user elainewest on FreezingBlue Flashcards. Principal The original amount of money invested Invesment The use of money to make more money in the future Interest payment Amount of money repaid to the lender in excess of principle Interest Rate r Interest payment (usually per year) divided by the principle Future Value The total value that the principal will produce at a defined future time when invested at rate r Present Value The amount that, if invested at rate r, will produce the future value after the defined rate of timePV=FV/(1+r)^t Compounding The process of interest payments increasing exponetially(1+r)^t Discounting 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.NPV=PV(Benefits)-PV(Costs) Annuity/ Annual Value (AV) A payment that is made every year for a specified periodFormula for present value of t payments starting next year is PV=[(1+r)^t-1/r(1+r)^t] x AV Perpetuity An investment that pays a fixed annual amount forever Authorelainewest ID54933 Card SetEcon Ch 14 Descriptionkey terms Updated2010-12-11T08:48:19Z Show Answers