Chapter 27 - The Basic Tools of Finance

Speculative bubbles

________ may happen because the value of a stock to a stockholder is decided by the stream of dividend payments but also on the final sale price.

Firm

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

Adverse selection

________: a high- risk person is more likely to apply for insurance than a low- risk person.

Efficient markets hypothesis

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

Dividends

________: cash payments a company makes to its shareholders.

Random walk

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

Standard deviation

________: risk measured by the volatility of variable.

Stock analysts

________ are hired by firms to conduct fundamental analysis and give advice on stocks to buy.

Utility

________: a persons subjective measure of well- being or satisfaction.

Finance

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