Chapter 14 - The Basic Tools of Finance

Random walk

________- the path of a variable whose changes are impossible to predict.

Firm

________- specific risk- the risk that affects only a single company.

Fundamental analysis

________- The study of a companys accounting statements and future prospects to determine its value.

Finance

________- the field that studies how people make decisions regarding the allocation of resources over time and the handling of risk.

Risk aversion

________- A dislike of uncertainty.

Present value

________- the amount of money today that would be needed, using prevailing interest rates, to produce a given future amount of money.

Informational

________ efficiency- the description of asset prices that rationally reflect all available information.

Efficient markets hypothesis

________- The theory that asset prices reflect all publicly available information about the value of an asset.

Diversification

________- The reduction of risk achieved by replacing a single risk with a large number of smaller, unrelated risks.