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According to the CFA Institute, after assimilating information from this topic a candidate should be able to:

  1. interpret interest rates as required rates of return, discount rates, or opportunity costs;
  2. explain an interest rate as the sum of a real risk-free rate and premiums that compensate investors for bearing distinct types of risk;
  3. calculate and interpret the effective annual rate, given the stated annual interest rate and the frequency of compounding;
  4. solve time value of money problems for different frequencies of compounding;
  5. 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. demonstrate the use of a time line in modeling and solving time value of money problems

Institute, CFA. 2016 CFA Level I Volume 1 Ethical and Professional Standards and Quantitative Methods. CFA Institute, 07/2015. VitalBook file.

In order to assess your knowledge of this chapter, feel free solve the quiz below: