Macroeconomics Chapter 17

Front 1

_______ investment refers either to paying for new additions to the capital stock or new replacements for capital stock that has worn out.

Back 1

Economic

Front 2

_____ investment refers to either buying an asset or building an asset in the expectation of financial gain.

Back 2

Financial

Front 3

The ________ is the idea that a specific amount of money is more valuable to a person the sooner it is received, and a person will need to be compensated for waiting to obtain it later.

Back 3

Time-value of money

Front 4

_______ is the present-day value, or worth, of returns or costs that are expected to arrive in the future.

Back 4

Present value

Front 5

_____ describes how quickly an investment increases in value when interest is paid not only on the original amount invested but also on all interest payments that have been previously made.

Back 5

Compound interest

Front 6

What three features do all investments share?

Back 6

• They require that investors pay some price - determined by the market - to acquire them.
• They give their owners the chance to receive future payments
• The future payments are typically risky.

Front 7

_____ are ownership shares in a corporation.

Back 7

Stocks

Front 8

_____ are debt contracts that are issued most frequently by governments and corporations

Back 8

Bonds

Front 9

What is the primary risk a bondholder faces?

Back 9

The corporation or government that issues the bond will default on the bond's promised payments.

Front 10

A _____ is a company that maintains a professionally managed portfolio of either stocks or bonds.

Back 10

mutual fund

Front 11

_____ economics focuses its attention on the investments that individuals and firms make in a wide variety of assets available to them in our modern economy.

Back 11

Financial

Front 12

Investors buy assets in order to obtain two types of _____ payments, a lump-sum payment and/or a stream of smaller payments.

Back 12

future

Front 13

The two most important factors considered by economists to affect investment decisions are _____ and _____.

Back 13

Risk and Returns

Front 14

The two standard measures for measuring returns and risk are ______ and ______.

Back 14

The beta statistic and the average expected rate of return.

Front 15

______ is the strategy of investing in a large number of different investments in order to reduce the overall risk to an entire portfolio.

Back 15

Diversification

Front 16

The _______ indicates how investors must be compensated for time preference as well as for the amount of nondiversifiable risk that an investment carries.

Back 16

Security Market Line

Front 17

_____ refers to the fact that investors never know with total certainty what future payments from an investment will turn out to be.

Back 17

Risk

Front 18

____ happens when investors try to take advantage and profit from situations where two identical or nearly identical assets have different rates of return.

Back 18

Arbitrage

Front 19

The ______ statistic is a common measure of the nondiversifiable risk of an asset.

Back 19

beta

Front 20

What type of risk on an investment must investors be compensated for?

Back 20

Non-diversifiable risk

Front 21

Average expected rate of return =

Back 21

i^f + risk premium