Time value of money, interest factors, NPV, IRR, depreciation methods, benefit-cost analysis and break-even analysis.
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- What is the time value of money?
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The principle that money available now is worth more than the same amount in the future because it can earn interest- Future Value is ____
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the worth of a present sum of money at a specified future date, accounting for earned interest- Present Value is ____
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the current worth of a future cash flow, discounted at a specified interest rate- Compound interest ____
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is interest earned on both the principal and previously earned interest- Simple interest ____
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is calculated only on the original principal amount, not on accumulated interest- A nominal interest rate ____
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is the stated annual interest rate without adjustment for compounding frequency- An effective interest rate ____
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accounts for the effect of intra-annual compounding on the nominal rate- What happens to returns as compounding frequency increases?
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Effective return increases, approaching the continuous compounding limit- The F/P factor ____
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converts a present amount to its equivalent future value at a given interest rate- The P/F factor ____
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discounts a future cash flow back to its equivalent present value- The F/A factor ____
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calculates the future worth of a series of equal annual payments- The A/F factor ____
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determines the uniform annual payment required to accumulate a specific future sum- The P/A factor ____
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equals the present worth of an annuity of one dollar per period- The A/P factor ____
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computes the uniform annual payment equivalent to a present lump sum (capital recovery factor)- What two parameters do all interest factors depend on?
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Interest rate (i) and number of periods (n)
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