Chapter 27

This chapter talks about present value, the amount of money today that would be needed, using prevailing interest rates, to produce a given future amount of money. It also talks about future value, the amount of money in the future that n amount of money today will yield, given prevailing interest rates. compounding is the accumulation of sum of money in, say, a bank account, where the interest earned remains in the account of earn additional interest in the future. Annuity is a regular income every year until you die. When owning stocks one must be aware of diversification, the reduction of risk achieved by replacing a single risk with a large number of smaller, unrelated risks. Deviation is the volatility of a variable (how likely it is to fluctuate). Firm-specific risk is the risk that affects only a single company. Market risk is risk that affects all companies in the stock market. Fundamental analysis is the study of a company's accounting statements and future prospects to determine its value undervalued: price is less than value, however, overvalued is price is more than value. Efficient markets hypothesis is a the theory that asset prices reflect all publicly available information about the value of an asset. Informational efficiency is the description of asset prices that rationally reflect all available information. Random walk is the path of a variable whose changes are impossible to predict. And because of diminishing marginal utility, most people are risk averse. People can avoid risk by buying insurance, diversifying their holdings, and choosing a portfolio with lower risk and lower return.

Chapter 26

This chapter focuses on saving, investing, and the financial system as a whole. The financial system is made up of banks, stock markets, mutual funds and all of these markets are intended to help people save money. When people do not want to save their money they can put it into investments but if they do this they have to look for other sources to fund these investments.There are various sources/institutions for loaning money for people as an investment (this could happen when someone is trying to open a business but does not have enough money) examples of places that lend money: banks or even a friend/business partner (these sources would invest their money in someone in the hopes that this person's business will be successful and they will get their money back).When paying back a loan there is an interest rate, and this interest rate is determined by the supply and demand of lovable funds 

Chp. 24

Chapter 24 is about measuring the cost of living. Methods used to calculate the cost of living is the CPI(Consumer Price Index) which is the measure of the overall cost of the goods and services purchased by a typical buyer. The steps such as "Fix the basket", "Find the prices", "Compute the basket's cost", "Compute index", and "Compute Inflation". The calculation can also calculate the PPI(Producer Price Index) which measures the cost of a basket of goods and services bought by firms. However, solving the issues in measuring the cost of living are difficult. These problems are known as substitution bias(when prices change from one year to the next, they do not change proportionately), introduction to new goods(when a new good is introduced, consumers have more variety from which to choose, and in turn reduces the cost of maintaining the same level of economic well-being), and unmeasured quality change(when the quality of a good deteriorates from one year to the next while its price remains the same).

Chp. 23

In chapter 23 it discusses how to measure a nations economic growth which can be measured using the GDP: total income of everyone in the economy (measures society's economic well-being. Factors that all play a part in macroeconomics(the study of economy wide phenomena including inflation unemployment, and economic growth.GDP measures total income of everyone and the total expenditure on the economy's out of goods and services)are: inflation(rate at which prices are rising), unemployment(percentage of labor force that is out of work), retail sales(total spending at stores), trade deficit(imbalance of trade between the US and the rest of the world). In a whole economy income must equal expenditure. Circular flow diagram assumes that all goods and services are bought by households and households spend all of their income.GDP can be calculated by adding total expenditure by households or by adding up the total income. All transactions have a buyer and a seller no matter what. Gross domestic product: market value of all final goods and service produced within a country in a given period of time. Combo of many different products and all products (exceptions: drugs, veggies grown at home, mowing a lawn if you're married)it only includes the value of final goods (no intermediate goods).