ABSTRACT
The value of money over time is expressed by the term "rate of interest" or "interest rate" and is commonly used in cash flow analysis. This chapter presents crucial concepts related to the computation of present worth, future worth, and equivalent uniform annual cash flows. A uniform cash flow is defined as a fixed amount of nominal cash flow that occurs over "n" number of time periods. In most real life situations, cash flows are measured annually. In those cases, they are referred to as a uniform annual series. The chapter deals with the concept of future worth followed by nominal and effective interest rates and the concept of equivalence. Compound interest uses the basic concept of compounding. The principle of compound interest can be likened to "interest upon interest" compounding. The chapter considers the concepts of nominal interest rate, effective interest rate, and continuous compounding.
