MGFB10H3 Chapter 5: Chapter 5 Notes
Document Summary
5. 1 opportunity cost: medium of exchange something that can be used to facilitate transactions. Time value of money is the idea that money invested today has more value than the same amount invested later. This concept helps us to understand how interest is earned and why investors are indifferent to investment today and future value later. The opportunity cost is the interest rate that would be earned by investing it. For this reason, we also call the interest rate the price of money: define simple interest and explain how it works. Simple interest is interest earned on the original principal. The growth in the value of an investment is simply the sum of annual interest earned: define compound interest and explain how it works. Compound interest is interest earned on the principal amount invested and on any accrued interest. Annuities are streams of level payments at regular time intervals.
