Discounted Cash Flow Valuation - Chapter 6

Flashcards covering key terms and concepts from Chapter 6 on Discounted Cash Flow Valuation.

Future Value

The amount to which an investment will grow over a period of time at a given interest rate.

Present Value

The current value of a future sum of money given a specified rate of return.

Annuity

A sequence of equal payments made at regular intervals over a period of time.

Compounding

The process of earning interest on both the principal amount and the interest that has been added to it.

Loan Amortization

The process of paying off a debt over time through regular payments that cover both principal and interest.

Effective Annual Rate (EAR)

The annual rate of interest that reflects compounding over a given period.

Annual Percentage Rate (APR)

The yearly interest rate charged on borrowed money, expressed as a percentage.

Pure Discount Loan

A loan in which the borrower receives money today and repays a single lump sum at a future date.

Interest-Only Loan

A loan that requires the borrower to pay only the interest for some period, with the principal due at the end.

Growing Annuity

A series of cash flows that increase at a constant rate each period.