Econ Ch 14

The original amount of money invested

The use of money to make more money in the future

Amount of money repaid to the lender in excess of principle

Interest payment (usually per year) divided by the principle

The total value that the principal will produce at a defined future time when invested at rate r

• The amount that, if invested at rate r, will produce the future value after the defined rate of time
• PV=FV/(1+r)^t

• The process of interest payments increasing exponetially
• (1+r)^t

Describes how much money a person must invest now to achieve a specific value in the future (the reverse of compounding)

• The present value of the benefits less the present value of the costs.
• NPV=PV(Benefits)-PV(Costs)

• A payment that is made every year for a specified period
• Formula for present value of t payments starting next year is PV=[(1+r)^t-1/r(1+r)^t] x AV

An investment that pays a fixed annual amount forever