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Unformatted text preview: Finance – Time, risk, asset evaluation Time – present discounted value Risk – Expected value,  Variance (measure of dispersion of possible distribution around the mean), Correlation (having more than one asset – studying whether the return of auto stocks in the US is correlated with auto stocks in Japan), Insurance (a way to lessen risk for companies) Asset evaluation Risk aversion Financial risk is present whenever there is some probability of earning a return on an investment that is less than the amount expected Decreasing marginal utility for risk averse people Utility is a subjective measure of wellbeing that depends on wealth Expected return Pi = probability of event happening R = return of asset / project A if event occurs ( estimated return) N = number of possible events Variance = Sum of Pi((Ra – E(Ra))^2) Standard deviation = Square root(Variance) N N N r r r r C R r r C R r C R C R PV ) 1 )....( 1 )( 1 )( 1 ( ......
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 Fall '08
 EUDEY
 Macroeconomics, Variance, stock markets

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