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Time Value of Money
Time Value of Money Concepts
Question | Answer |
---|---|
time value of money | money can be invested today to earn interest and grow to a larger dollar amount in the future |
compound interest | includes interest not only on the initial investment but also on the accumulated interest in previous periods |
effective interest rate | rate at which money actually will grow during a full year |
monetary assets | include money and claims to receive money, the amount of which is fixed or determinable |
monetary liabilities | obligations to pay amounts of cash, the amount of which is fixed or determinable |
credit-adjusted risk-free rate of interest | used when applying the expected cash flow approach to the calculation of present value |
annuity | series of equal cash flows to be received or paid each period |
ordinary annuity | cash flows occur at the end of each period |
annuity due | cash flows occur at the beginning of each period |
deferred annuity | first CF occurs more than one period after the date the agreement begins |