Ch 11 Flashcards
The ___ is the price of borrowing money for a specified period of time, expressed as a percentage per dollar borrowed and per unit of time.
Interest rate
___ is the process of accumulation, as interest is paid on interest that’s already been earned.
Compounding
The ___ is how much a certain amount of money that will be obtained in the future is worth today.
Present value
___ exists when the costs or benefits of an event or choice are uncertain.
Risk
The ___ is the average of each possible outcome of a future event, weighted by its probability of occurring.
Expected value
Those who are ___ generally have low willingness to take on risk.
Risk-averse
Those who are ___ enjoy a higher level of risk.
Risk-seeking
A(n) ___ is a product that lets people pay to reduce uncertainty in some aspects of their lives.
Insurance policy
A(n) ___ is a fee in return for covering costs that clients would otherwise have to pay if they experienced any of these unfortunate events.
Premium
___ occurs when people organize themselves in a group to collectively absorb the cost of risk faced by each individual.
Risk Pooling
___ is the process by which risks are shared across many different assets/people, reducing the impact of any particular risk on one individual.
Risk diversification
___ is a state that occurs when buyers and sellers have different information about the quality of a good or the riskiness of a situation, and this asymmetric information results in failure to complete transactions that would’ve been possible if both sides had the same information.
Adverse selection
The ___ is the tendency for people to behave in a riskier way or to renege on contracts when they don’t face the full consequences of their actions.
Moral hazard
