2417205
Description
Flashcards by dylan_earl, updated more than 1 year ago
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Created by dylan_earl
over 9 years ago
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| Question | Answer |
| 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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