FIN 300 Lecture Notes - Lecture 8: Net Present Value, Cash Flow, Efficient-Market Hypothesis
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Investors should expect to earn a fair rate for return for their level of risk: market efficiency does not mean that individual traders are immune to psychological basis and make perfect investment decisions. I(cid:374)stead it assu(cid:373)es that the (cid:862)(cid:374)oise(cid:863) is (cid:272)aused (cid:271)(cid:455) t(cid:396)ade(cid:396) (cid:271)iases te(cid:374)ds to (cid:272)a(cid:374)(cid:272)el out. Investor mood: stocks tend to perform better when investors are in a better mood, e. g. , stock returns tend to be higher on sunny days than on cloudy days. Net present value: net present value, usually abbreviated npv, is the difference between the estimated pv of an investment and its cost, npv (cid:373)easu(cid:396)es (cid:862)(cid:448)alue-added(cid:863) It also can be interpreted in terms of cost-benefit analysis: it represents the amount by which the estimated benefit exceed the costs of the investment: from this interpretation, it follows that. If npv > 0 = invest, as it adds value. If npv < (cid:1004) do(cid:374)"t i(cid:374)(cid:448)est, as it su(cid:271)t(cid:396)a(cid:272)ts (cid:448)alue.
