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Unformatted text preview: discount factor, p. 75
discount rate, p. 75
future value, p. 74
interest rate, p. 73
interest rate factor, p. 73
present value (PV ), p. 74
time value of money, p. 73 MyFinanceLab
Study Plan 3.4 net present value ( NPV ),
NPV decision rule, p. 78 MyFinanceLab
Study Plan 3.5 12/21/11 12:32 PM Chapter 3 The Valuation Principle: The Foundation of Financial Decision Making 85 ◗ Regardless of our preferences for cash today
versus cash in the future, we should always
first maximize NPV. We can then borrow or
lend to shift cash flows through time and find
our most preferred pattern of cash flows.
3.6 The Law of One Price
◗ Arbitrage is the process of trading to take advantage of equivalent goods that have different
prices in different competitive markets.
◗ The Law of One Price states that if equivalent
goods or securities trade simultaneously in
different competitive markets, they will trade
for the same price in each market. This law is
equivalent to saying that no arbitrage opportunities...
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This note was uploaded on 02/07/2014 for the course MIS 304 taught by Professor Mejias during the Spring '07 term at University of Arizona- Tucson.
- Spring '07