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- 1. TIME VALUE OF MONEY
- 2. Time line important tool used in time value of money analysis; it is a graphical representation used to show the timing of cash flows
- 3. Time : 0 1 2 3 4 5
- 4. Outflow cash deposit ,cost , or amount paid has a minus sign Inflow cash receipt
- 5. Time: 1 0 2 3 5% Cash flows: 100 ?
- 6. Time: 0 1 5% 100 2 10% ?
- 7. Compounding arithmetic process of determining the final value of a cash flow or series of cash flow when compound interest is applied
- 8.
- 9.
- 10. Future value (FV) amount to which a cash flow or a series of cash flows will grow over a given period of time when compounded at a given interest rate
- 11. 0 Initial deposit: 1 2 3 4 5 5.79 6.08 100 Interest earned: 5.00 Amount at the end of each period = 105.00 5.25 5.51 110.25 115.76 121.55 127.63
- 12. N I PV PMT FV = the number of periods = interest rate of periods = present value = payment = future value
- 13. Relationship among Future Value, Growth, Interest Rates, and Time 5 4 Future Value of $1 3 i = 0% I =5% 2 i = 10% i = 15% 1 0 0 2 4 6 8 10 Periods
- 14. Opportunity Cost Rate rate of return on the best available alternative investment of equal risks
- 15. Present Value (PV) value of today of a future cash flow or series of cash flow
- 16. Fair(Equilibrium) Value price at which investors are indifferent between buying or selling a security
- 17. Discounting process of finding the present value of a cash flow or a series of cash flows; discounting is the reverse of compounding
- 18. 0 5% PV=? 1 2 3 4 5 127.63
- 19. 0 100 5% 1 105.00 1.05 2 110.25 1.05 3 4 5 115.76 1.05 121.25 1.05 127.63 1.05
- 20. Relationship among Present Value, Interest Rates, and Time 1 0.75 i = 0% 0.5 i = 5% i = 10% i = 15% 0.25 0 0 2 4 6 8 10
- 21. 0 ? 78.35 1 2 3 4 5 100
- 22. 0 5% 78.35 n=? 100
- 23. Annuity series of payment of an equal amount at fixed intervals for a specified number of periods
- 24. Ordinary (Deferred) Annuity annuity whose payment occur at the end of each period
- 25. Annuity Due annuity whose payment occur at the beginning of each period
- 26. future value of an annuity over n periods
- 27. Perpetuity stream of equal payments expected to continue forever
- 28. CONSOL perpetual bond issued by the British government to consolidated past debts; in general, any perpetual bond
- 29. Uneven Cash Flow Stream series of cash flow in which the amount varies from one period to the next
- 30. Payment (PMT) term designates equal cash flows coming at regular intervals
- 31. Cash Flows (CF) term designates uneven cash flows
- 32. Terminal Value future value of an uneven cash flows stream
- 33. Annual compounding arithmetic process of determining the final value of a cash flow or series of cash flows when interest is added once a year
- 34. Semiannual Compounding arithmetic process of determining the final value of a cash flow or series of cash flows when interest is added twice a year
- 35. Nominal (Quoted, or Stated, or APR) InterestorRate or contracted, quoted, stated, interest rate
- 36. Effective (Equivalent)Annual Rate (EFF% or EAR) annual rate of interest actually being earned, as opposed to the quoted rate “equivalent annual rate”
- 37. Annual Percentage Rate (APR) periodic rate X the number of periods per year
- 38. Amortized Loan loan that is repaid in equal payments over its life
- 39. Amortization schedule table showing precisely how a loan will be repaid gives the required payment on each payment date and a breakdown of the payment, showing how much is interest and how much is repayment of principal

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