Finance Notecard 2

Finance Notecard 2 - Compounding the process of...

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Compounding – the process of accumulating interest on an investment over time to earn more interest Interest on interest – interest earned on the reinvestment of previous interest payments Compound interest – interest earned on both the initial principal and the interest reinvested from prior periods Simple interest – interest earned only on the original principal amount invested Present value – the current value of future cash flows discounted at the appropriate discount rate Discount – Calculate the present value of some future amount Discount rate – the rate used to calculate the present value of future cash flows Discounted cash flow (DCF) valuation – Calculating the present value of a future cash flow to determine its value today Annuity – A level stream of cash flows for a fixed period of time Annuity due – an annuity for which the cash flows occur at the beginning of the period Perpetuity – An annuity in which the cash flows continue forever Conson – A type of perpetuity (Canada and UK)
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