ECON 1040 Lecture Notes - Lecture 9: Fundamental Analysis, Efficient-Market Hypothesis, Adverse Selection
Document Summary
Present value: the amount that would be needed today to yield that future sum at prevailing interest rates. Future value: the amount the sum will be worth at a given future date, when allowed to earn interest at the prevailing rate. Compounding: the accumulation of a sum of money where the interest earned on the sum earns additional interest. Small differences in interest rates lead to big differences overtime. If a variable grows at a rate of x percent per year, that variable will double in about 70/x years. Utility: a subjective measure of well being that depends on wealth. Two problems in insurance markets: adverse selection- a high risk person benefits more from insurance, so is more likely to purchase it, moral hazard- people with insurance have less incentive to avoid risky behavior. Standard deviation- a measure of a variable"s volatility (how likely it is to fluctuate)
