One of the four major time value of money terms; the amount to which an individual cash flow or series of cash payments or receipts will grow over a period of time when earning interest at a given rate of interest 1. A process that involves calculating the current value of a future cash flow or series of cash flows based on a certain interest rate
2. A 6% return that you could have earned if you had made a particular investment
3. A value that represents the interest paid by borrowers or earned by lenders, expressed as a percentage of the amount borrowed or invested over a 12-month period
4. A cash flow stream that is created by a lease that requires the payment to be paid on the first of each month and a lease period of three years
5. A concept that maintains that the owner of a cash flow will value it differently, depending on when it occurs
6. A cash flow stream that is generated by a share of preferred stock that is expected to pay dividends every quarter indefinitely
7. A table that reports the results of the disaggregation of each payment on an amortized loan, such as a mortgage, into its interest and loan repayment components
8. A cash flow stream that is created by an investment or loan that requires its cash flows to take place on the last day of each quarter and requires that it last for 10 years
9. A type of security that is frequently used in mortgages and requires that the loan payment contain both interest and loan principal
Time value of money calculations can be solved using a mathematical equation, a financial calculator, or a spreadsheet. Which of the following equations can be used to solve for the future value of an ordinary annuity?
PMT x {[ (1 +r) – 1] / r} x (1 + r)
PMT x {1 – [1 / ]} / r
PMT x {[ – 1] / r}
FV /