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Chapter 1

CHE249H1 Chapter Notes - Chapter 1: Capital Asset Pricing Model, Risk-Free Interest Rate, Investopedia

Chemical Engineering and Applied Chemistry
Course Code
Yuri Lawryshyn

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CHE 374 - 2014 F Engineering Economics
Glossary of Terms
Prepared by Ali Bashiri

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Lecture 02 Time Value of Money Part A
Time Value of Money: The idea that money available at the present time is worth more than the same
amount in the future due to its potential earning capacity. This core principle of finance holds that,
provided money can earn interest, any amount of money is worth more the sooner it is received.
Interest Rate: The amount charged, expressed as a percentage of principal, by a lender to a borrower for
the use of assets. (Investopedia)
Nominal Interest Rate: Interest rate stated per year
Effective Interest Rate: Interest rate per year compounded annually

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Lecture 03 Time Value of Money Part B
T-Bill: A short-term debt obligation backed by the U.S. government with a maturity of less than one
Risk Free Rate: The theoretical rate of return of an investment with zero risk. (Investopedia)
First/Capital Cost: Expense to build or to buy and install
Operation and Maintenance (O&M) Cost: Annual expense, e.g., electricity, labour, repairs
Salvage Value(s): Receipt at project termination for disposal of equipment (can be a cost)
Revenues: Annual receipts due to sale of products or services
Overhauls: Major capital expenditure that occurs part way through the life of an asset
Prepaid Expenses: Annual expenses, such as leases and insurance payments that must be paid in
Time Horizon: The time interval for the project
Revenue: Receipts due to sale of product or service over a given period
Expenses: Real or inferred (e.g. depreciation) costs incurred over a given period
Net Income = Revenues Expenses
Value: A measure of the worth a person ascribes to a good or service
Utility: A measure of the power of a good or service to satisfy human wants
Yield Curve: A line that plots the interest rates, at a set point in time, of bonds having equal credit
quality, but differing maturity dates.
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