Term
| future value (FV) or compound value |
|
Definition
| the value of a sum after investing over one or more periods |
|
|
Term
| Net Present Value of Investment (NPV) |
|
Definition
|
|
Term
|
Definition
| the process of leaving the money in the financial market and lending it for another year |
|
|
Term
|
Definition
|
|
Term
|
Definition
|
|
Term
| Future Value of an Investment |
|
Definition
|
|
Term
|
Definition
| the process of calculating the present value of a future cash flow/opposite of compounding |
|
|
Term
|
Definition
| factor used to calculate the present value for a future cash flow |
|
|
Term
| Present Value of an Investment |
|
Definition
|
|
Term
| NPV of a T-period project |
|
Definition
| NPV = -C0 + ∑Ti=0 Ci/(1+r)i |
|
|
Term
| stated annual interest rate |
|
Definition
| annual interest rate without consideration of compounding. Also called annual percentage rate (APR) |
|
|
Term
| Future Value with Compounding |
|
Definition
|
|
Term
|
Definition
compound every infinitesimal instant
C0 x ert
C0 = initial investment
r = stated annual interest rate
T = number of years
e = 2.718 |
|
|
Term
|
Definition
constant stream of cash flows without end
C
r |
|
|
Term
|
Definition
cash flow stream that continually rises
PV = C
r - g
r= appropriate discount rate
g = rate of growth per period
C = cash flow to be received one period hence |
|
|
Term
| Three important points concerning the growing perpetuity formula |
|
Definition
- The numerator
- The discount rate and the growth rate
- The timing assumption
|
|
|
Term
|
Definition
| level stream of regular payments that lasts for a fixed number of periods. One of the most common kinds of financial instruments (pensions, leases, mortgages) |
|
|
Term
| Formula for Present Value of Annuity |
|
Definition
PV = C[ 1 - __1__ ]
___(1 + r)T
r |
|
|
Term
|
Definition
|
|
