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Personal Finance Ch. 3
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Terms in this set (17)
Time Value of Money
The ____ ____ __ _____ Principal states that a dollar received today is worth more than a dollar received in the future.
Present Value
The value of today's dollars of a future sum of money.
Future Value
How much spending power money has at a point in the future.
Compound interest
Interest paid on interest
Rule of 72
A helpful investment rule that states you can determine how many years it will take for a sum to double by dividing the annual growth rate into 72
Discount rate
The interest rate used to bring future money back to present.
Compound Annuity
Depositing an equal sum of money at the end of each year for a certain number of years, and allowing it to grow.
Annuity
A series of equal dollar payments coming at the end of each time period for a specific number of time period.
Amortized Loan
Loan paid off in equal installments.
Perpetuity
An annuity that continues to pay forever.
Present Value of a Perpetuity
annual dollar amount provided by the perpetuity divided by the annual interest (or discount) rate.
Principle
The face value of the deposit or debt instrument
Reinvested Interest
Taking money that you have earned on an investment and plowing it back into that investment is called ______ ____.
Annual Interest Rate
The rate charged or paid for the use of money on an annual basis is called the ____ ____ ___.
Future Value Interest Factor
The value used as a multiplier to calculate an amount's future value is called the ___ ___ ___ ____.
True
True or False: Financial institutions can compound interest on a quarterly, daily, or even continuous basis
Present Value Interest Factor
A multiplier used to determine the present value of an annuity.
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