Learning Outcome Statements

1. The Time Value of Money and Interest Rates

a. interpret interest rates as required rates of return, discount rates, or opportunity costs;

b. explain an interest rate as the sum of a real risk-free rate and premiums that compensate investors for bearing distinct types of risk;

2. Calculate the Effective Annual Rate

c. calculate and interpret the effective annual rate, given the stated annual interest rate and the frequency of compounding;

3. The Future Value and Present Value of a Single Cash Flow

d. solve time value of money problems for different frequencies of compounding;

4. The Future Value and Present Value of a Series of Equal Cash Flows (Ordinary Annuities, Annuity Dues, and Perpetuities)

e. calculate and interpret the future value (FV) and present value (PV) of a single sum of money, an ordinary annuity, an annuity due, a perpetuity (PV only), and a series of unequal cash flows;

5. The Future Value and Present Value of a Series of Uneven Cash Flows

e. calculate and interpret the future value (FV) and present value (PV) of a single sum of money, an ordinary annuity, an annuity due, a perpetuity (PV only), and a series of unequal cash flows;

6. The Cash Flow Additivity Principle

f. demonstrate the use of a time line in modeling and solving time value of money problems.