**1.2.1
- Future value of a single amount**
The *future value* of a present amount can be
computed by adding compound interest over a specified
period of time. *Compound interest* is the amount
by which the principal grows each period. *Principal*
is the amount on which interest is paid. (More
1.2.1>>)
**1.2.2 - Compunding more
frequently than annually**
Interest can be computed more frequently than annually.
With this greater precision, banks (for example) can
offer accounts that can be withdrawn in the middle of
the year. But it can also be misleading if the interest
rate on a consumer loan states the *annual percentage
rate* (APR) when interest is actually compounded
more frequently than annually. (More
1.2.2>>)
**1.2.3 - Future value of
an annuity**
Until now we have been assuming that future values
arose from only one initial investment. What happens
when there is a stream of multiple investments? An *annuity*
describes a stream of equal annual cash flows. (Annuities
come in two flavors: a stream of *outflows* invested
to produce future returns or a stream of *inflows*
of investment returns.) (More 1.2.3>>) |