time value of money (TVM)
the cornerstone of investment analysis. this concept is based on the premise that the value of money is not only its face value but also the interest or profit that can be earned by investing it wisely
certificate of deposit
also known as a CD, a savings vehicle that gives the purchaser or bearer of the certicicate the right to receive interest. a CD has a fixed interest rate and maturity date. if the bearer withdraws the funds before the maturity date, a penalty is normally assessed.
Present Value (PV)
the current value of a cash-flowing asset based on the amount and timing of its projected cash flows
Future Value (FV)
the value of a cash-flowing asset some time in the future, assuming a compounded rate of interest
the present value of a cash-flowing asset based on its projected future cash flow, factoring in the timing of the cash flow, the risk of the cash flow being generated, and the mix of capital used to finance the deal.
an investors ROI target
that is, the balanced cost of the debt and the equity used to finance a deal
a process of estimating an asset's current market value, which can then be compared with its cost to acquire or develop.
the weighted average cost of capital used, as the I/Y in present value calculations
single sum (lump sum)
a time value of money concept where only a single sum of money is involved in the calculations.
a fixed amount of money received or paid each compounding period for a set period
fixed amount of money received or paid at the end of each compounding period for a set time
same as a regular annuity except the payments occur at the beginning of the compounding period rather than at the end
an annuity that yields the same cash flow forever
uneven stream of cash flow
a stream of cash flow where the payments are not the same in all compounding periods.
what is the difference between an annuity and an annuity due
the timing of the cash flow
the cash flow for an annuity due occurs...
at the beginning of each period
the cash flow for a regular annuity is received or paid...
at the end of each period