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Cards In This Set
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1. The value of an investment after one or more periods of time is called the:
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Future value
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The process of accumulating interest in an investment over time to earn more interest is called:
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Compounding
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Interest on interest refers to the interest earned on:
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Prior interest payments
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Interest earned on both the initial principal and the reinvested interest from prior
periods is called:
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e. compound interest.
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Simple interest is the interest earned on:
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The original principal amount invested
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The current value of future cash flows discounted at the appropriate discount rate is called the:
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Present value
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The process of finding the present value of some future amount is often called:
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Discounting
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The interest rate used to calculate the present value of future cash flows is called the:
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Discount rate
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The valuation calculating the present value of a future cash flow to determine its value today is called __________ valuation.
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Discounted cash flow
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Simple interest is based on the concept of receiving interest:
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On initial amount invested only
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Over a period of years, an investment in an account which pays 6 percent simple
interest will:
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Increase in value less than an account which pays 6 percent compound interest.
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A financially wise individual would prefer a loan based on __________ interest and an
investment earning __________ interest.
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Simple; compound
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Over time, the effects of compound interest increase the future value of a lump sum
deposited today by:
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An increasing amount each year, given an interest rate that is greater than zero.
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Which one of the following best defines an annuity?
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A level stream of payments occurring at equal intervals of time
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An annuity for which the cash flows occur at the beginning of each time period is called a(n):
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Annuity due.
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