FINC 341 Chp 5 notes

FINC 341 Chp 5 notes - Finance341Chapter5Notes

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Finance 341 Chapter 5 Notes Time Lines : an important tool used in time value analysis; it is a graphical  representation used to show the timing of cash flows Compounding : the process of going to future values from present values Compound Interest : occurs when interest is earned on prior periods’ interest Simple Interest : occurs when interest is not earned on interest Opportunity Cost : the rate of return you could earn on an alternative investment of  similar risk Discounting : the process of finding the present value of a cash flow or a series of cash  flows.   o Discounting is the reverse of compounding The fundamental goal of financial management is to maximize the firm’s value, and the  value of a business is the present value of its expected future cash flows. Annuity : a series of equal payments at fixed intervals for a specified number of periods o If the payments occur at the end of each year, the annuity is an  ordinary  (deferred) More common in finance o If the payments are made at the beginning of each year, the annuity is an 
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FINC 341 Chp 5 notes - Finance341Chapter5Notes

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