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Unformatted text preview: 1 1 Financial Economics Concepts ยก Time Value of Money ยข Compounding ยข Discounting ยก Risk/return/diversification ยก Stock Price, Efficient markets and random walks ยก Insurance basics ยก Behavioral Issues ยก Punch lines rather than depth 2 In the News? 3 Course Issues ยข Extra credit ยข Investment Game ยข Advise 3 ยข Tutoring/ LRC/ Helping Yourself ยข FINAL EXAM ยข Wikis ยข Clicker Points 2 4 Compound growth and rule of 72/70/69 ยก Compound Growth ex: ยข $100x(1+.1) =110 ยข $100x(1+.1)(1+.1)=121 ยข $100x(1+.1) 2 =121 ยข-> FV = PV (1+i) n = PVei n ยก Where did extra $1 come from ยก โThe most powerful force in the universe is compound interest โ. Albert Einstein ยก What About inflation? inom=ireal+exp infl ยก 2PV=PV(1+i) n -> 2= (1+i) n -> ln2=nln(1+i)-> ยข 69/n=I (ln(1+i) approx i, mult by 100 5 Why/how do we discount future values? ยข Present Discounted Value ยข Why? (i=r=interest rate) ยก Interest - not inflation, but linked ยข I nominal = ireal + expected inflation ยก Dis-count some of future stream ยข Amt could earn in interest...
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This note was uploaded on 03/24/2011 for the course ECON 103 taught by Professor Lin during the Summer '08 term at Rutgers.
- Summer '08