Time Value of Money - UC San Diego

Flashcards covering key vocabulary and concepts related to the Time Value of Money.

Time Value of Money

The concept that money available today is worth more than the same amount in the future due to its earning potential.

Cash Flow Analysis

An analysis method considering how much money is coming in and going out over time.

Compounding

Calculating cash flows into the future; interest earned on an investment for given periods.

Discounting

Calculating the present value of cash flows, stripping the interest from the principal.

Present Value (PV)

The current worth of a cash flow received in the future, adjusted for a discount rate.

Future Value (FV)

The amount of money that an investment will grow to over time at a specified interest rate.

Annuity

A series of equal payments made at regular intervals, whose present value can be calculated.

Periodic Interest Rate (i)

The interest rate applied for each compounding period.

Number of Compounding Periods (n)

The total number of periods for which interest is calculated in compounding.

Compounding Factor

The value derived from the formula (1+i)^n, representing growth over time due to compounding.