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ECON 1B03 (520)
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Oct 23 note - Should I buy mutual funds.docx

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School
McMaster University
Department
Economics
Course
ECON 1B03
Professor
Hannah Holmes
Semester
Fall

Description
Should I buy mutual funds? (Online Chapter) 23/10/2008 Present value calculations - Future value question: suppose you put \$100 in a saving account now and the interest rate is 4%. How much will you have in 1 year? o Answer = \$104 - After 2 years you would have o 104 (1.04) o 100 (1.04) (1.04) o 100 (1.04) ^2 - Present is the reverse of this process How much would you have to save now to have \$x at some time in the future? P.V. = X / (1+R) ^n X= amount received R = interest rate N = # of periods Question: the interest rate is 3% per year. What is the present value of \$100 to be received in 6 months? - Answer: 100 / (1.03)^.5 - = \$98.3 Rule of 70 This give a way to calculate how long something is going to double is they are increasing at a constant rate of interest Suppose a variable is growing rate of x% per year.According to the rule if 70 it will take 70/x years for the variable to double Risk - Most people are risk averse (they don’t like risk) - ‘Diversification’= owning several different stocks - Idiosyncratic risk – uncertainty associated with specific comp
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