the amount of money today that would be needed using prevailing interest rates to produce a future given amount of money
risk aversion
a dislike of uncertainty
utility function
shows how utility a subjective measure of satisfaction depends on wealth, as wealth rises utility function becomes flatter, reflecting property of diminishing marginal utility
firm specific risk
risk that affects single/specific company
market risk
risk that affects all companies in the stock market
standard deviation
volitility of a variable; how much variable is likely to fluctuate
efficient market hypothesis
the theory that asset prices reflect all publicly available information about value of an asset
fundamental analysis
the study of a company's accounting statements and future prospects to determine it's value
random walk theory
the path of a variable whose changes are impossible to predict
EFT vs managed funds
in 10 years ending July 2005 80% of mutual stock funds failed to beat the S&P 500 index fund
Present value technique
(1xr)xN
(1xr)*xN
Rule of 70
70/percentage points in growth equals years for income to double