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Unformatted text preview: Chapter 14 The Basic Tools of Finance • Finance = The field that studies how people make decisions regarding the allocation of resources over time and the handling of risk. • Present Value = The amount of money today that would be needed to produce, using prevailing interest rates, a given future amount of money. • Future Value = The amount of money in the future that an amount of money today will yield, given prevailing interest rates. • Compounding = The accumulation of a sum of money in, say, a bank account, where the interest earned remains in the account to earn additional interest in the future. • Risk Averse = Exhibiting a dislike of uncertainty. • Utility = A person’s subjective measure of well-being or satisfaction. • Annuity = A regular income very year until you die. • Adverse Selection = A high-risk person is more likely to apply for insurance than a low- risk person....
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- Spring '08