Time Value of Money
Glossary terms from:
A financial institution that provides various products and services to its customers, including checking and savings accounts, loans and currency exchange.
Any activity or organization that produces or exchanges goods or services for a profit.
Money in the form of paper currency or coins (as distinct from checks, money orders or credit).
Interest that is earned not only on the principal but also on the interest already earned.
Paying interest on the principal and on interest already earned. For example, if someone deposits $2,000 in an account that pays interest at 8 percent, he or she will earn $160 in interest after one year, for a balance of $2,160. If the depositor leaves this sum in the account for another year, however, he or she will earn $172.80 in interest because the 8 percent rate will apply to the new balance of $2,160, not the original $2,000 deposit. The longer the money is left in the account, the more dramatic the compounding effect.
A conclusion reached after considering alternatives and their results.
Money paid regularly, at a particular rate, for the use of borrowed money.
The price paid for using someone else's money, expressed as a percentage of the amount borrowed.
The process of putting money someplace with the intention of making a financial gain. Investment possibilities include stocks, bonds, mutual funds, real estate, and other financial instruments or ventures.
The purchase of capital goods (including machinery, technology or new buildings) that are used to produce goods and services. In personal finance, the amount of money invested in stocks, bonds, mutual funds and other investment instruments.
A piece of work usually done on order at an agreed-upon rate. Also a paid position of regular employment.
Anything that is generally accepted as final payment for goods and services; serves as a medium of exchange, a store of value and a standard of value. Characteristics of money are portability, stability in value, uniformity, durability and acceptance.
A special type of loan for the purchase of a house or other real estate.
The second-best alternative (or the value of that alternative) that must be given up when scarce resources are used for one purpose instead of another.
The amount of money that people pay when they buy a good or service; the amount they receive when they sell a good or service.
An original amount of money invested or lent.
Money set aside for a future use that is held in easily-accessed accounts, such as savings accounts and certificates of deposit (CDs).
An interest-bearing account (passbook or statement) at a financial institution.
Interest paid on the initial investment (the principal) only. Calculated by multiplying the investment principal times the annual rate of return times the number of years involved.
The giving up of one benefit or advantage in order to gain another regarded as more favorable.
Value of Money
The ability of money to buy goods and services. A wide variety of items has been used as money. Money need not have any intrinsic value. It is people's willingness to accept it that gives it value.
Payments for labor services that are directly tied to time worked, or to the number of units of output produced.
Effort applied to achieve a purpose or result, often for pay; skills and knowledge put to use to get something done; employment at a job or in a position; occupation, profession, business, trade, craft, etc.