Financial Advice for My Son

Glossary

The best way to improve this glossary is for you to email me any word you tried to look up from my pages, but wasn't in the glossary. In addition, as long as it was a word that I used here, I will email you the definition.

PV - Present Value The present value of a given investment is the amount of today's dollars that will grow to equal the future value of that given investment. It is the best way of comparing investments. However, the calculation of the present value requires an assumed interest rate, usually taken as the "risk-free rate of return". See section Before Investing for an exhaustive explanation.

Risk-free rate of return The interest rate that is free from fears of default, etc. Usually taken as the rate of U.S. government bonds for the time period that one is concerned about. Thus if you are considering a 6 month investment, the risk-free rate of return for that is the 6 month U.S. T-bill rate. For a 30 year investment, it would be the 30 year U.S. bond.


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