HS 300 Flashcards – Module 7

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[h] HS300 – Module 7

[q] Effective Annual Interest Rate

[a] The real return on a savings account when the effects of compounding over time are taken into account.

[q] Real Rate of Return

[a] The rate of return on an investment that is adjusted for inflation.

[q] Real Rate of Return Formula

[a] Formula = [(1+discount rate) / (1+inflation rate)] -1

[q] Uneven Cash Flow – Keystrokes Used on Financial Calculator

[a] Keystrokes used:

CFj – enters periodic cash flow payments.

Nj – allows equal cash flow entry.

NPV – determines present value of cash flows.

[q] Net Present Value (NPV)

[a] Represents the difference between the initial cash outflow and the present value of future cash inflows. A common technique used to evaluate capital projects. Can be positive or negative.

[q] Internal Rate of Return (IRR)

[a] The discount rate that results in a net present value of zero for an investment.

[q] Mortgage/Interest Principal – Keystrokes Used on Financial Calculator

[a] Keystrokes used:

AMORT – amortizes a loan.

INPUT – selects the period of time.