ECON 301 Study Guide - Capital Asset Pricing Model, Net Present Value, Risk Aversion
Document Summary
Absolute amount of wealth an individual is willing to expose to risk as a function of change in wealth. Inability to distinguish between two markets leading to practices which results in the loss of one market. Could be exercised at any time up to t. Stream of cashflow is for a set period of time (t periods). Model with economic agents not all possessing the same information. e. g insurance market, used good market, Debt instrument and financial contract where the issuer (e. g. corporation) is obligated to repay the buyer the. Model outlining asset pricing given a single source of systematic risk. Certain wealth which gives the same utility as a riskier gamble. A bond for which interest is paid indefinitely but the principle not at all. Ability of 1 asset to predict the behaviour of another. Measures strength of linear relationship between 2 or more assets. Annual rate, but payment may be every 6 months.