Finance Glossary

Symbol	Term
$r$	Interest rate
$PV$	Present value
$FV$	Future value
$C$	Cash flow
$n$	Number of periods

Time Value of Money

Future value of a cash flow:

$$F{V}_n=C\times (1+r{)}^n$$

Present value of a cash flow:

$$PV=\frac{C}{(1+r{)}^n}$$

Interest Rate vs. Discount Rate vs. Cost of Capital

• “Interest rate” is used to mean a quoted rate in the market.
• “Discount rate” is the appropriate rate for discounting a given cash flow, matched to the frequency of the cash flow.
• “Cost of capital” to indicate the rate of return on an investment of similar risk.