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  1. An investment is similar to a sacrifice because it requires giving something of value up now with the expectation of receiving something better in the future.
  2. Compound interest is interest that has been earned on interest previously earned. Albert Einstein called compound interest the “eighth wonder of the world.”
  3. The four variables of the present value equation are (1) present value (PV), (2) future value (FV), number of years (N), and (4) interest rate (I).
  4. The thirteen financial terms mentioned in the chapter are (1) amortized loan, (2) annuity, (3) compound annuity, (4) compounding, (5) effective interest rate, (6) future value, (7) discount rate, (8) nominal return, (9) present value, (10) principal, (11) real return, (12) reinvesting, and (13) tax-adjusted return.
  5. The relationship between the compounding period and the effective interest rate is a positive one. As the compounding period becomes more frequent, the effective interest rate increases.

 



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