ECON 1BB3 Lecture Notes - Mutual Fund, Efficient-Market Hypothesis, Marginal Utility

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ECON 1BB3 Full Course Notes
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ECON 1BB3 Full Course Notes
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Summary of lecture notes from chapter 9 and practice questions. Key points: because savings can earn interest, a sum of money today is more valuable than the same sum of money in the future. A person can compare sums from different times using the concept of present value. The present value of any future sum is the amount that would be needed today, given prevailing interest rates, to produce that future sum: because of diminishing marginal utility, most people are risk averse. According to the efficient markets hypothesis, financial markets process valuable information rationally, so a stock price always equals the best estimate of the value of the underlying business. Some economists question the efficient markets hypothesis, however, and believe that irrational psychological factors also influence asset prices. Definition of finance: the field that studies how people make decisions regarding the allocation of resources over time and the handling of risk.

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