Compounding & Future Value
The financial process of moving money forward in time where interest earned in past periods earns its own interest in subsequent periods.
compounding
The process of moving future cash flows backward in time to calculate their value today.
What is discounting?
The fair market value of financial assets like stocks and bonds is determined by calculating the present value of these expected items.
dividends, interest, principal
What sport uses a shuttlecock?
badmitton
If you invest $200 today in an account earning 10% compound interest annually, this is your total balance at the end of 2 years.
What is $242.00?
When the discount rate used on a future cash flow rises, its present value changes in this direction.
What is decreasing (or dropping)?
True or False: High corporate profit from 10 years ago directly increases a stock's valuation today, even if future revenue drops.
False
What is the name of the three-headed dog in Harry Potter?
fluffy
Unlike compound interest, this interest calculation method earns returns strictly on the initial principal balance, ignoring past accumulated interest.
simple interest
The present value of $500 to be received 2 years from today using a discount rate of 10%.
$413.22
An asset promises to pay $100 in Year 1 and $100 in Year 2. If the discount rate is 0%, its exact market value today is this amount.
$200
From what grain is whiskey made?
barley
Calculate Investing $1,000 for 3 years at 5% for compound interest
$1,157.63
Between $1,000 received in 5 years and $1,000 received in 10 years at a positive discount rate, this payment has the lower present value today.
What is the $1,000 received in 10 years?
A bond promises to pay $50 at the end of Year 1 and $1,050 at the end of Year 2. At a market discount rate of 5%, its total present market value is this round number.
What is $1,000.00?
What is the capital city of Australia?
Canberra
These two factors can be increased to geometrically expand the terminal future value of an investment.
interest rate and time
If the present value of a future cash flow drops from $822 to $713, this shift must have taken place regarding the discount rate
What is an increase in the discount rate?
What is the name of the literary device that compares two unlike things using the words "like" or "as"?
Simile
Which famous physicist was a high-school dropout?
Albert einstein