- Present value: Present value (PV) is the current value of a future sum of money or stream of cash flows given a specified rate of return. … Future value tells you what an investment is worth in the future while the present value tells you how much you’d need in today’s dollars to earn a specific amount in the future.
- Future value: Future value (FV) is the value of a current asset at a future date based on an assumed rate of growth. The future value is important to investors and financial planners, as they use it to estimate how much an investment made today will be worth in the future.
- Internal rate of return: The internal rate of return (IRR) is a metric used in financial analysis to estimate the profitability of potential investments. IRR is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis. … It is the annual return that makes the NPV equal to zero.
- Net present value: Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project.
- Effective interest rate: Effective Interest Rate is the true interest rate that a company or an individual earns or pay over a given period of time as a result of compounding. It could be an interest rate on investment, a loan or any other financial product.
- Expected rate of return: The expected return is the profit or loss that an investor anticipates on an investment that has known historical rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these results.
- Compound interest: Compound interest (or compounding interest) is interest calculated on the initial principal, which also includes all of the accumulated interest from previous periods on a deposit or loan Interest can be compounded on any given frequency schedule, from continuous to daily to annually.
- Time value of money: The time value of money (TVM) is the concept that a sum of money is worth more now than the same sum will be at a future date due to its earnings potential in the interim. This is a core principle of finance. A sum of money in the hand has greater value than the same sum to be paid in the future.
- Discount rate: The discount rate is the interest rate charged to commercial banks and other financial institutions for short-term loans they take from the Federal Reserve Bank. The discount rate refers to the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.
- Credit: This term has many meanings in the financial world, but credit is generally defined as a contract agreement in which a borrower receives a sum of money or something of value and repays the lender at a later date, generally with interest.
- Interest rate: The interest rate is the amount a lender charges a borrower and is a percentage of the principal—the amount loaned. The interest rate on a loan is typically noted on an annual basis known as the annual percentage rate (APR).
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