Time Value of Money Terms and Definitions

Looking for time value of money terms and definitions? They are here.

  • Present value – The value now of a given amount to be paid or received in the future assuming compound interest.
  • Net present value (NPV) – The difference that results when the original capital outlay is subtracted from the discounted net cash flows.
  • Net present value method – Discounts net cash flows to their present value and then compares that present value to the capital outlay required by the investment.
  • Annuity – A series of equal dollar amounts to be paid or received periodically.
  • Present value of an annuity – The value now of a series of future receipts or payments, discounted assuming compound interest.
  • Compound interest – The interest computed on the principal and any interest earned that has not been paid or withdrawn.
  • Discounting the future amount(s) – The process of determining present value.
  • Interest – Payment for the use of another’s money.
  • Principal – The amount borrowed or invested.
  • Simple interest – The interest computed on the principal only.

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