Present Value- Amount of money today that would be needed, using prevailing interest rates, to produce a given future amount of money
Future Value- Amount of money in the future that an amount of money today will yield, given prevailing interest rates
Compounding- 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 Aversion- a dislike of uncertainty
Diversification- the reduction of risk achieved by replacing a single risk with a large number of smaller, unrelated risks
Firm-specific risk- risk that affects only a single company
Market risk- risk that affects all companies in the stock market
Fundamental analysis- the study of a company's accounting statements and future prospects to determine its value
Efficient markets hypothesis- theory that asset prices reflect all publicly available information about the value of an asset
Informational Efficiency- the description of asset prices that rationally reflect all available information
Random Walk- the path of a variable whose changes are impossible to predict
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