Chapter 5 (Future value, present value, r and t)

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7 Terms

1
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“Time Value of Money”

$1 in hand today is worth more than $1 in the future

OR

Money today is worth more than the same money in the future because you could invest it and earn interest (opportunity cost)

2
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Future Value

Value in the future of some amount of money with accumulated interest

3
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Present Value

The value of some future amount of money today

4
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For a given interest rate, the longer the time period

the higher the future value

5
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For a given interest rate, the longer the time period,

the lower the present value

6
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For a given time period, the higher the interest rate,

the higher the future value

7
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For a given time period, the higher the interest rate,

the lower the present value