Mini Midterm (Ch.27) Flashcards Preview

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Flashcards in Mini Midterm (Ch.27) Deck (12)
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1

Finance

the field that studies how people make decisions regarding the allocation of resources over time and the handling of risk

2

Present value

the amount of money today that would be needed, using prevailing interest rates, to produce a given future amount of money

3

Future value

the amount of money in the future that an amount of money today will yield, given prevailing interest rates

4

Compounding

The accumulation of a sum of money in, say, a bank account, where the interest earned remains in the account to earn additional interest in the future

5

Risk aversion

a dislike of uncertainty

6

Diversification

the reduction of risk achieved by replacing a single risk with a large number of smaller, unrelated risks

7

Firm-specific risk

risk that affects only a single company

8

Market risk

risk that affects all companies in the stock market

9

Fundamental analysis

the study of a company’s accounting statements and future prospects to determine its value

10

Efficient market hypothesis

the theory that asset prices reflect all publicly available information about the value of an asset

11

Informational efficiency

the description of asset prices that rationally reflect all available information

12

Random walk

the path of a variable whose changes are impossible to predict