ECON 2010 Chapter Notes - Chapter 27: Market Risk, Standard Deviation, Diminishing Returns

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5 May 2015
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Finance is the study of how people and businesses make decisions to allocate resources and manage risk over time. Present value: measuring the time value of money. A sum of money today is greater than that same sum of money in the future. This is because money received today can be invested and earn interest over time. Present value is amount of money today that would yield a given value in the future at current interest rates. Future value is the amount of money in the future that a given value today would yield at current interest rates. Compounding is the accumulation of money as an initial investment earns interest and interest is earned on interest. The process of calculating the present value of an amount of money in the future is called discounting. For a given interest rate and amount of money, r and x respectively,

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