ECON 106F Lecture Notes - Lecture 3: Expected Return, Risk Aversion, Risk Premium

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26 Apr 2016
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Ch 3 lecture: financial decision making and the law of. How does it relate to the law of one price: calculate the no-arbitrage price of an investment opportunity. Valuing decisions: identify costs and benefits, you may need help from other areas in identifying the relevant costs and benefits. Areas like marketing, economics, organizational behavior, strategy, operations. Time value of money: consider an investment opportunity with the following certain cash flows: pay 100k today in order to get 105k in one years time. This may not be the ideal trade depending on the time value of money (which dictates the difference in value between money today and money in the future) Interest rate (an exchange rate across time): the rate at which we can exchange money today for money in the future is determined by the current interest rate, suppose the current interest rate is 7%.

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