COM 240 Chapter Notes - Chapter 5: Investment, Interest

• School: University of Victoria
• Department: Commerce
• Course: COM 240
• Professor: Majerbi Basma

Document Summary

Com 240 - chapter 5: introduction to valuation: time value of money: the fact that a dollar in hand today is wry more than a dollar promised at some time in the future. Original principle: the original amount of money invested (ex. Compounding: accumulating interest in an investment over time to earn more interest interest on interest: interest earned on the reinvestment of pervious interest payments: results in compound interest. Compound interest: interest earned on both the initial principle & the interest reinvested from prior periods. Simple interest: interest earned only on the original principle $ invested. = . 05: present value (pv): the current value of future cash ows discounted at the appropriate discount rate just the reverse of future value instead of compounding the money, you discount it back to the present. Discount: calculate the present value of some future amount.