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12 terms

Business Finance- time value of money

STUDY
PLAY
Intrinsic value
Has worth independent of any benefit it may provide to humans
Time value of money
the principle that a dollar received today is worth more than a dollar received in the future
Future value
What an amount invested today at a particular interest rate will be worth in the future
Simple interest
interest paid on the principal alone , I=prt
Compound interest
interest earned on both the principal amount and any interest already earned
Discounting
The act of finding the present value of future cash flows.
Discount rate
the rate used to calculate the present value of future cash flows
Discount rate formula
FV = PV x 1/(1+i)
Cash outflow
a negative value
Cash inflow
a positive value
Rule 72
Approximation of how long it will take to double a sum at a given interest rate. (72/annual compound interest rate)
TDM
Time needed to double your money
See rule 72