5-1 Time Value of Money

Front

Compounding

Back

The process where the value of an investment grows exponentially over time due to the earnings on the investment itself also growing.

Front

Future Value (FV)

Back

The current value of an asset at a specified date in the future, based on an assumed rate of growth or interest rate.

Front

Inflation

Back

The increase in the general level of prices in an economy.

Front

Nominal Return

Back

The percentage gain or loss on an investment over a specified period without adjusting for inflation.

Front

Opportunity Cost

Back

The value of the next best alternative that is forgone when a decision is made to choose one option over another.

Front

Present Value

Back

The current value of a future sum of money or future stream of cash flows, discounted at a specific rate of return.

Front

Real Return

Back

The rate of return on an investment after adjusting for inflation.

Front

Time Value of Money (TVM)

Back

The idea that money available today is worth more than the same amount of money available in the future.