Time Value of Money: Valuing Cash Flow Streams

These flashcards cover key vocabulary and concepts related to the Time Value of Money and valuing cash flow streams, aiding in the understanding of fundamental financial principles.

Cash Flow Stream

A series of cash flows lasting several periods.

Present Value (PV)

The amount of money needed today to produce a future cash flow.

Future Value (FV)

The value of a cash flow at a specified future date.

Annuity

A series of regular, equal cash flows occurring over time.

Perpetuity

A constant stream of cash flows that continues indefinitely.

Interest Rate (r)

The rate charged for the use of money, usually expressed as a percentage.

Discounting

The process of determining the present value of a cash flow by applying a discount rate.

Compounding

The process of determining the future value of a cash flow by applying an interest rate.

Growth Rate

The rate at which cash flows increase over time.

Timeline

A visual representation of cash flows over time.

Rule of Cash Flow Valuation

Guidelines to compare or combine cash flows at different points in time.

NPER

The number of periods in an investment, often used in financial calculators.

PMT

The payment amount in each period for an annuity.

FV Formula

FVn=Cx{(1 + r)^n} - A formula used to calculate future value.

PV Formula

PV = C / (1 + r)^n - A formula used to calculate present value.

Value of Cash Flows

The monetary worth assigned to a cash flow stream, calculated as either present or future value.