Chapter 04 Introduction to Valuation: The Time Value of Money

Flashcards based on key concepts from the Time Value of Money chapter focused on definitions related to finance.

Future Value

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

Present Value

The current worth of a future sum of money or stream of cash flows given a specified rate of return.

Compounding

The process of earning interest on previously earned interest.

Simple Interest

Interest calculated only on the principal amount.

Discount Rate

The interest rate used to determine the present value of future cash flows.

Accrued Interest

Interest that has been earned but not yet paid out.

Interest on Interest

The interest earned on previously accumulated interest.

Lump Sum

A single payment of money as opposed to a series of payments.

Simple Interest Formula

Interest = Principal × Rate × Time.

Interest Compounding Period

The frequency with which interest is applied to the principal amount of a deposit.