Week 1 Definitions

Topics: Time value of money, Rate of return, Investment Pages: 6 (1126 words) Published: April 16, 2015
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Define the following terms using your text or other resources. Cite all resources consistent with APA guidelines.

Resource you used
Time value of money
Time value of money refers to the value of money based on its earning potential. Money received today is more highly valued than money received in the future because of the potential to make money on money. i.e. if I were given 100 dollars today I could immediately invest that money and potentially turn it into 150 dollars in 6 months time versus receiving 100 dollars in six months time. Time Value of Money (TVM) Definition | Investopedia. (2014, January 1). Investopedia. Retrieved July 1, 2014, from http://www.investopedia.com/terms/t/timevalueofmoney.asp Efficient market

An efficient market is a market where all information is available to all market participants at any time. This means that people can make investment decisions based on factual information immediately after that information is available. My own common knowledge, no cite necessary.

Primary versus secondary market
“Primary vs. secondary market says that the primary market deals with the newly issued securities while the secondary market deals with already traded securities. When the companies issue securities in the primary market, they collect funds directly from the investors through the securities sales. But, in the secondary market the money earned from selling a security does not go to the company. The money thus earned goes to the investor who sells the security.” Primary vs. Secondary Market. (2014, January 1). Primary vs. Secondary Market. Retrieved July 2, 2014, from http://finance.mapsofworld.com/capital-market/primary-vs-secondary.html Risk-return tradeoff

Risk return tradeoff refers to the anomaly in investment that exists between the level of risk and the level of return. The typical idea is the higher the risk, the higher the reward and vise versa. Lets use betting at a casino for an example; a larger bet on a number in roulette would result in higher winnings if that number comes up and a higher loss if it does not thusly leading to a higher risk. My own common knowledge, no cite necessary.

Agency (principal and agent problems)
A principal agent problem exists all to often in the business world and exists when an agent, who acts on behalf of a principal makes decision based on their own interest rather than those of the principal. One example of this can be an investment councelor or agent advising or directly investing a person or principals money in a certain company for a kick back. While this might not be the best investment for the principal, the agent will receive monetary compensasion in return and therefor chooses to make the investment. My own common knowledge, no cite necessary.

Market information and security prices and information asymmetry Information asymmetry refers to a situation where one person or entity in a transaction, either the buyer or the seller, has more knowledge than they are sharing about the product causing an unfair situation and leading to one side taking advantage of the other. Market information is information shared within a given market to all parties. Security prices can be affected by who has the market information. Security Definition | Investopedia. (2014, January 1). Investopedia. Retrieved July 3, 2014, from http://www.investopedia.com/terms/s/security.asp Return on investment

Return on investment refers to the compensation an investor would receive for investing in a certain product or service. Investors are people who provide financial backing to a business venture or idea with the promise of a percentage of profit from said investment or business. When the investor receives the percentage of profits this is the return on their investment. Risk return tradeoff is closely related. My own common knowledge, no cite necessary.

Cash flow and a source of value
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