COMM 121 Chapter Notes - Chapter 5: Annuity, Cash Flow, Compound Interest
27 Sep 2013
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Future value = principle amount x (1 + interest rate) Present value is the value of a future cash stream discounted at an appropriate market interest rate: this method tells us what a future amount of money is valued at today. The decision to buy this year and sell next year can be evaluated as the net present value: npv = pv of future cash flows pv of the cost of the investment. Compounding is the process of leaving money in the capital market and lending it for another year. Simple interest is interest that only considers the principle amount i. e. 10% on 100 for ten years only means per year (no interest on past interest) Compound interest is when an interest payment is reinvested once it"s been received: the return something after 2x years is the return after x years, squared (i. e. )
