Time Value of Money.2

Google the key concepts related to Present Value, Future Value and put your findings in this glossary.

Suggested keywords: Simple Interest and Compound Interest; Cash Flows; Perpetuities and Annuities

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* 1: Simple interest and compound interest

- Simple interest is a quick and easy method of calculating the interest charge on a loan. Simple interest is determined by multiplying the daily interestrate by the principal by the number of days that elapse between payments.

- Compound interest (or compounding interest) is interest calculated on the initial principal, which also includes all of the accumulated interest of previous periods of a deposit or loan. Thought to have originated in 17th century Italy, compound interest can be thought of as “interest on interest,” and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount.

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