TVM Terminology Treasure Hunt

What is the Present Value (PV)?

• The Present Value (PV) is the future worth of current cash flows.

• The Present Value (PV) is the interest rate applied to future cash flows.

• The Present Value (PV) is the current worth of future cash flows.

• The Present Value (PV) is the total amount of money invested.

Define Future Value (FV).

• Future Value (FV) is the initial amount invested before interest.

• Future Value (FV) is the total amount of interest earned only.

• Future Value (FV) is the value of an investment at the time of withdrawal.

• Future Value (FV) is the value of an investment after earning interest over a specified period.

What is an Annuity?

• An annuity is a financial product that provides a series of payments made at equal intervals.

• A loan that requires monthly interest payments only.

• A type of insurance policy that pays out a lump sum.

• A savings account that earns interest over time.

Explain Perpetuity.

• Perpetuity refers to a one-time cash payment.

• Perpetuity is a type of investment that lasts for a fixed period.

• Perpetuity is a loan that must be repaid within a year.

• Perpetuity is a financial concept representing a stream of cash flows that continues forever.

What does Discount Rate refer to?

• The discount rate refers to the interest rate used to calculate the present value of future cash flows.

• The discount rate is the tax rate applied to profits.

• The discount rate is the rate at which a company pays its employees.

• The discount rate is the fee charged for processing transactions.

How is Present Value calculated?

• PV = FV + r * n

• PV = FV / (1 - r)^n

• PV = FV / (1 + r)^n

• PV = FV * (1 + r)^n

What is the significance of Future Value in investments?

• Future Value is significant as it helps investors project the growth of their investments over time.

• Future Value is irrelevant for short-term savings.

• Future Value guarantees a fixed return on investments.

• Future Value only applies to real estate investments.

Describe the characteristics of an Annuity.

• An annuity is a type of insurance policy that only pays out upon death.

• An annuity guarantees a variable payment amount based on market performance.

• An annuity provides a series of equal payments over time, characterized by payment frequency, duration, interest rate, and type.

• An annuity is a one-time payment made at the end of a contract.

What distinguishes a Perpetuity from a regular Annuity?

• A perpetuity pays indefinitely, while a regular annuity pays for a fixed period.

• A perpetuity is only available for corporate investors, while a regular annuity is for individuals.

• A perpetuity can be redeemed at any time, while a regular annuity cannot.

• A perpetuity pays a fixed amount each year, while a regular annuity pays indefinitely.

Why is the Discount Rate important in financial calculations?

• The Discount Rate is important because it helps assess the present value of future cash flows and evaluate investment opportunities.

• It determines the interest rate for savings accounts.

• It sets the maximum loan amount for borrowers.

• It is used to calculate tax liabilities.