Chapter 5 Cue Cards

Frage	Antworten
Present amount of money ________ to Future Value when it is able to earn interest	Grow
Two kinds of interest	Simple Compound
Simple Interest: $1000 at 5%/year for 10 years	500 (PV%t)
Compound Interest $1000 at 5%/year for 10 years	1628.89 PV x (1+r) ^ t
Formula for FV	PV x (1+r) ^ t
Formula for PV	FV after t periods / (1+r) ^ t
How do you find Discount Rate when calculating interest?	Found using discount factor or financial calculator.
Multiple Cash Flows Calculation $1000 today $1200 in a year $1400 in two years 8% interest How much in account after 3 years?	Calculate it.
What is an annuity	Cash flows of equal amount every period for limited number of periods
What is a perpetuity	Cash flows of equal amounts every period for infinity (Unlimited periods)
PV of a Perpetuity Formula	PV Perpetuity = C/r
PV of t-period Annuity	C x [ (1/r) - ((1/(r(1+r)^t)) ] (Part in brackets is Annuity Factor) (PVA)
FV of a t-period annuity	[ C x ((1+r)^t -1) ] / r (Part in brackets without C is Future Value Annuity Factor) (FVA)
Ordinary Annuity vs Annuity Due	Ordinary is after 1 period, Annuity Due is right away.
PV of Growing Perpetuity	PV Perpetuity = C / (r-g)
PV of Growing Annuity	PV Annuity Growth = [C/r-g] x ( 1-( ((1+g)^t) / (1+r) ) )
Inflation: Rate at which prices as a whole are increasing (T/F)	True dat
Nominal Interest Rate: Rate at which money invested _________	Grows
Real Interest Rate: Rate at which purchasing power of an investment _______________	Increases
Real Rate = Nominal - Inflation	1+ Real = 1+ Nominal / 1+ Inflation
Effective Annual Interest Rate (EAR)	Interest rate that is annualized using compound interest
Annual Percentage Rate (APR)	Interest rate that is annualized using simple interest (They do not recognize the effect of compounding)

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