Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
15 Cards in this Set
- Front
- Back
|
Competitive market |
A market in which a good can be bought and sold at the same time |
|
|
Law of one price |
In competitive markets, securities with the same cash flows must have the same price |
|
|
Arbitrage |
The practice of buying and selling equivalent goods to take advantage of a price difference |
|
|
Arbitrage opportunity |
Any situation in which it is possible to make a profit without taking any risk or making any investment |
|
|
Time value of money |
The difference in value between money received today and money received in the future; also, the observation that two cash flows at two different points in time have different values |
|
|
Interest Rate |
The rate at which money can be borrowed or lent over a given time period |
|
|
Interest rate factor |
One plus the interest rate, it is the rate of exchange between dollars today and dollars in the future. It has units of "$ in the future / $ today" |
|
|
Present value |
The value of a cost or benefit computed in times of cash today |
|
|
Future value |
The value of a cash flow that is moved forward in time |
|
|
Discount factor |
The value today of a dollar received in the future |
|
|
Discount Rate |
The appropriate rate to discount a cash flow to determine its value at an earlier time |
|
|
Timeline |
A linear representation of the timing of (potential) cash flows |
|
|
Compounding |
Computing the return on an investment over a long horizon by multiplying the return factors associated with each intervening period |
|
|
Compound Interest |
The effect of earning "interest on interest" |
|
|
Discounting |
Finding the equivalent value today of a future cash flow by multiplying by a discount factor, or equivalently, dividing by one plus the discount rate |
