Principles of Finance · free preview
Now versus Later, the Foundational Trade
Every financial decision weighs money now against money later, opportunity cost prices the wait, and the timeline diagram organizes the when that governs all time value of money problems.
1. The choice hidden in every decision
The choice hidden in every decision
2. Opportunity cost prices the wait
Opportunity cost prices the wait
3. Timelines, the universal organizer
Timelines, the universal organizer
4. Why precision about timing pays
Why precision about timing pays
5. The two forces
According to this lesson, which two forces together make a dollar today worth more than the same dollar in the future?
6. Opportunity cost of waiting
Your bank pays 4 percent annually, and you are owed 1,000 dollars payable one year from now instead of today. What does the wait cost you?
7. Equivalence across time
At a 4 percent annual rate, 1,000 dollars today is equivalent to what amount one year from now?
8. Reading a timeline
On a standard TVM timeline, where is the deposit you make today placed?
9. Compounding convention
Why do TVM problems in this course assume cash flows occur at period ends unless stated otherwise?
10. Why timelines scale
Why does the lesson call the timeline the universal organizer rather than just a beginner's aid?
11. The price of waiting
What two-word term names the return given up on the best alternative use while money is tied up waiting? Answer in lowercase.
12. The five-digit organizer
What one-word term names the horizontal diagram that places each cash flow at its own date? Answer in lowercase.
13. Today's marker
On a TVM timeline, what number labels the present moment, today? Write the number.
14. The general name for the wait's price
What one-word term names the price of money across time, quoted as a percentage per period? Answer in lowercase.
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