PROBLEMS AND APPLICATIONS

PROBLEMS AND APPLICATIONS 1. According to an old myth, Native Americans sold the island of Manhattan about 400 years ago for $24. If they had invested this amount at an interest rate of 7 percent per year, how much would they have today? 2. A company has an investment...

QUESTIONS FOR REVIEW

QUESTIONS FOR REVIEW 1. The interest rate is 7 percent. Use the concept of present value to compare $200 to be received in 10 years and $300 to be received in 20 years. 2. What benefit do people get from the market for insurance? What two problems impede the insurance...

CONCLUSION

CONCLUSION The study of asset valuation tel us that the stock price of any company should reflect its expected future profitability. Although most of the tools of finance are well established, there is more controversy about the validity of the efficient markets...

MARKET IRRATIONALITY

MARKET IRRATIONALITY The efficient markets hypothesis assumes that people buying and selling stock rationally process the information they have about the underlying value. But is the stock market really that rational? Or do stock prices sometimes deviate from...

For a Nobel Prize Winner, Less Is More

For a Nobel Prize Winner, Less Is More If you’ve won the Nobel Prize in economics, society assumes you’re probably brilliant at managing your own money Daniel Kahnenan, who shared the Nobel Prize in 2002, didn’t win the prize for his investing...