time value of money concept

Time Value of Money

The principle that a dollar today is worth more than a dollar in the future because of its potential earning capacity.

Discounted Cash Flow Analysis

A financial tool used to compare the value of cash flows occurring at different times by discounting future cash flows to their present value.

Opportunity Cost

the loss of potential gain from other alternatives one alternative is chosen

interest earning potential

the ability of money to earn interest over time when invested, it increases its value

return on investment

the gain or loss made on an investment relative to the amount invested, expressed as a percentage.

bonds

debt securities issued by corporations or governments to raise capital, paying periodic interest and returning principal at maturity.

Shares

units of ownership in a company, representing a claim on its assets and earnings. Shareholders may receive dividends and have voting rights in corporate decisions.

dividends

a portion of a company's earnings distributed to shareholders as a cash payment or additional shares, typically paid on a regular basis.

Real Rate

real rate = nominal rate (i) - inflation rate (r )
it can be a negative, positive or equal to 0
the fisher equation is preferred
real rate = (1+i) divided by (1+r) minus 1