Time Value of Money(TVM)
The principles and computations used to revalue cash payoofs from different times so they are stated in dollars of the same time period.
Opportunity Cost Rate
The rate of return on the best available alternative investment of equal risk.
Lump-Sum Amount
A single payment that occurs either today or at some date in the future.
Annuity
A series of payments of an equal amount at fixed, equal intervals for a specified number of periods.
Ordinary Annuity
An annuity with payments that occur at the end of each period.
Annuity Due
An annuity with payments that occur at the beginnign of each period.
Uneven Cash Flows
Multiple payments of different amounts over a period of time.
Future Value(FV)
The amount to which a cash flow or series of cash flows will grow over a given period of time when compounded at a given interest rate.
Compounding
The process of determining the value to which an amount or a series of cash flows will grow in the future when compound interest is applied.
Payment(PMT)
This term designates constant cash flows, that is, the amount of an annuity payment.
Cash Flow(CF)
This term designates cash flows in general, including uneven cash flows.
Terminal Value
The future value of a cash flow stream.
Present Value(PV)
The value today-that is, the current value- of a future cash flow or series of cash flows.
Discounting
The process of determining the present value of a cash flow or a series of cash flows to be received in the future; the reverse of compounding.
Perpetuities
Streams of equal payments that are expected to continue forever.
Annual Compounding
The process of determining the future(or present) value of a cash flow or series of cash flows when interest is paid once per year.
Semiannual Compounding
The process of determining the future(or present) value of a cash flow or series of cash flows when interest is paid twice per year.
Simple(Quoted) Interest Rate
The rate, quoted by borrowers and lenders, that is used to determine the rate earned per compounding period.
Annual Percentage Rate(APR)
Another name for the simple interest rate, doesn't consider the effect of interest compounding.
Effective (Equivalent) Annual Rate
The annual rate of interest actually being earned, as opposed to the quoted rate; considers the compounding of interest.
Amortized Loan
A loan that requires equal payments over its life; the payments include both interest and repayment of the debt.
Amortization Schedule
A schedule showing precisely how a loan will be repaid. It gives the payment required on each payment date and a breakdown of the payment, showing how much is interest and how much is repayment of principal.