Solutions Manual for Fundamentals of Corporate Finance Chapter 5
Study online at https://quizlet.com/_drem57
1. The idea that money has a time value and is worth more today than in the
future due to the opportunity cost of forgoing consumption today.: Time value
of money
2. The sum to which an investment will grow after earning interest.: Future
value
3. The value today of a future cash flow, obtained by discounting future cash
flows back to the present at an appropriate discount rate.: Present value
4. The process of converting an initial amount into a future value by earning
interest on the initial investment and reinvesting the interest.: Compounding
5. The process of converting future cash flows to their present value by
adjusting the cash flows for the time value of money.: Discounting
6. The initial amount of an investment.: Principal amount
7. The interest paid on the original investment, which remains constant from
period to period.: Simple interest
8. The interest earned on the reinvestment of previously earned interest, re-
sulting in interest-on-interest effect.: Compound interest
9. The compound interest rate used to determine the present value of future
cash flows.: Discount rate
10. The rate at which a value or investment grows over time.: Growth rate
11. A horizontal line that shows cash flows as they occur over time, used to
analyze cash flows over certain time periods.: Time line
12. A rule of thumb to determine how fast an investment can double, where the
time to double the money is approximately equal to 72 divided by the interest
rate.: Rule of 72
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Study online at https://quizlet.com/_drem57
1. The idea that money has a time value and is worth more today than in the
future due to the opportunity cost of forgoing consumption today.: Time value
of money
2. The sum to which an investment will grow after earning interest.: Future
value
3. The value today of a future cash flow, obtained by discounting future cash
flows back to the present at an appropriate discount rate.: Present value
4. The process of converting an initial amount into a future value by earning
interest on the initial investment and reinvesting the interest.: Compounding
5. The process of converting future cash flows to their present value by
adjusting the cash flows for the time value of money.: Discounting
6. The initial amount of an investment.: Principal amount
7. The interest paid on the original investment, which remains constant from
period to period.: Simple interest
8. The interest earned on the reinvestment of previously earned interest, re-
sulting in interest-on-interest effect.: Compound interest
9. The compound interest rate used to determine the present value of future
cash flows.: Discount rate
10. The rate at which a value or investment grows over time.: Growth rate
11. A horizontal line that shows cash flows as they occur over time, used to
analyze cash flows over certain time periods.: Time line
12. A rule of thumb to determine how fast an investment can double, where the
time to double the money is approximately equal to 72 divided by the interest
rate.: Rule of 72
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