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Time Value of Money
Finance Ch. 4/ Exam
Term | Definition |
---|---|
Present Value | When you do not know what something you will receive in the future means in present day, the unknown is what it would be worth today/present cash flow |
Future Value | If we receive money today how much will it be in the future, the unknown is the future value/future cash flow |
Simple Interest | Simple interest is calculated on the principal, or original, amount of a loan |
Compound Interest | Compound interest is calculated on the principal amount and the accumulated interest of previous periods, and thus can be regarded as “interest on interest.” |
Interest | the price you pay to borrow money (ex. borrowing money from bank to pay for college tuition, you have to pay a certain amount of interest (every month) until you are able to pay off the loan) |