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Cards In This Set
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What does it mean to pay simple interest on an investment?
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Paying interest only on the amount originally invested
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What is the current value of future cash flows defined as? (the amount invested today in order for it to be worth something later)
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Present value
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What is the process of calculating the present value of some future amount?
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Discounting
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The interest rate used to compute the present value of a future cash flow is called the what?
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Discount rate
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What is the formula for the future value of $500 invested today at 7 percent interest rate for 8 years?
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FV = 500(1 + 0.07)^8
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What is the formula for the present value of $600 to be received in 6 years? The discount rate is 7 percent?
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PV = 600/(1 +0.07)^6
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The process of earning interest on prior interest earnings is defined as?
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Compounding
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What will increase the present value of a lump sum future amount?
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Decreasing the interest rate
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