module 4 Time Value of Money
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9 Terms
Time Value of Money
A dollar today is worth more than a dollar tomorrow
This is the case because you can earn interest on your money’s potential earning capacity.
Future Value formula (for one period)
FV = PV (1+r)
r = the appropriate interest rate
Present Value formula (for one period)
PV = FV / (1+r)
The general formula for the future value of an investment over multiple periods:
FV = PV (1+r)^T
T = number of periods over which the cash is invested
PV for multiple periods
PV = FV / (1+r)^T
Perpetuity
A constant stream of cash flows (C) that lasts forever
Growing perpetuity
Growing stream of cash flows that lasts forever
annuity
Stream of equal cash flow for a given number of periods. Its payments stop after T periods.
Note 
Flashcards (23)