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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This document was uploaded on 10/27/2011 for the course FIN 3716 at LSU.
 Spring '10
 FANG
 Compounding, Interest

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