Finance Essentials: A Guide to Key Concepts and Formulas
Classified in Mathematics
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Finance Essentials
Key Concepts
Time Value of Money
- Future Value: Amount to which an investment will grow after earning interest
- Present Value: Value today of a future cash flow
Interest
- Compound Interest: Interest earned on interest
- Simple Interest: Interest earned only on the original investment
- Annual Percentage Rate (APR): Interest rate that is annualized using simple interest
- Effective Annual Rate (EAR): Interest rate that is annualized using compound interest
Cash Flow Streams
- Annuity: Equally spaced level stream of cash flows for a limited period of time
- Ordinary Annuity: End of period cash flows
- Annuity Due: Beginning of period cash flows
- Perpetuity: A stream of level cash payments that never ends
Bonds
- Bond: Security that obligates the issuer to make