Personal Finance Quiz 3

Time Value of Money A dollar today is worth more than a dollar in the future
Present Value The current value in today’s dollars of a future sum of money
Future Value The dollar value of an investment at some future point in time
Power of Compound Interest By allowing the interest that you earn on an investment to stay in the investment and to earn interest on the interest you have already earned
Rule of 72 investment rule-of-thumb tells you approximately how many years it takes for a sum of money to double in size
Interest Accrual starting early often means that you will earn more in compound interest than those who deposited more but started later
Discount Rate discount rate is the interest rate used to bring future dollars to present dollars
Inflation the “enemy” of compound interest and makes it very difficult to reach your financial goals
Compound Annuity uses the principles of reinvesting and compound interest
Annuity A series of equal dollar payments at the end of each period for “x” number of time periods is
Amortized Loans Car loans and mortgage loans are typical annuities in the form of this. It involves a loan that is paid off in equal installments
Perpetuity an annuity where the payments never stop and lasts forever
Principal The face value of a deposit or debt instrument
Reinvesting Taking money that you have earned on an investment and plowing it back into that investment

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