Time-Value Money Flashcards
Capital Theory
The value of an asset is the sum of the future values generated over time
Capital Theory
The value of an asset is the sum of the future values generated over time
Value of a bond
B = sum(interst) + base
Perpetuity
The bond never matures
Geometric series
Finite formula
1-a^(n+1)/1-a
Infinite
1/(1-a)
Face value
Interest/i
price > asset
overpriced/overvalued
price
underprice/undervalued
Inter-temporal consumer equilibrium equation
MU1/p1 = MU2/(P2/i+1)
renewable resource graph shape
Convect until a certain point then concave(S - shape)
renewable resource derivative graph shape
growth rate = J-shape
renewable resource harvest point?
growth rate intersects i
Rate of return vs safety of investment
Concave graph(PPC)
Willingness to accept ? willingness to pay
> greater then
Sunk Cost
Cost that cannot be recovered when a decision is made
u(w) = concave, Risk premium ? 0
>
u(w) = linear, Risk premium ? 0
=
u(w) = convect, Risk premium ? 0
Global risk taker, small $$ and big $$
Small $$ - risk averse
Big $$ - risk taker
Global risk taker, small $$ and big $$
Small $$ - risk averse
Big $$ - risk taker
Value of a bond
B = sum(interst) + base
Perpetuity
The bond never matures
Geometric series
Finite formula
1-a^(n+1)/1-a
Infinite
1/(1-a)
Face value
Interest/i
price > asset
overpriced/overvalued
price
underprice/undervalued
Inter-temporal consumer equilibrium equation
MU1/p1 = MU2/(P2/i+1)
renewable resource graph shape
Convect until a certain point then concave(S - shape)
renewable resource derivative graph shape
growth rate = J-shape
renewable resource harvest point?
growth rate intersects i
Rate of return vs safety of investment
Concave graph(PPC)
Willingness to accept ? willingness to pay
> greater then
Sunk Cost
Cost that cannot be recovered when a decision is made
u(w) = concave, Risk premium ? 0
>
u(w) = linear, Risk premium ? 0
=
u(w) = convect, Risk premium ? 0
Local risk taker, small $$ and big $$
Small $$ - risk taker
Big $$ - risk averse
Global risk taker, small $$ and big $$
Small $$ - risk averse
Big $$ - risk taker
Moral Hazard Problem
Unobservable Action
dverse Selection Problem
Unobservable Characteristics