Essay

1.Time value of money

The idea that money available at the present time is

worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received.

Also referred to as "present discounted value".

2.Efficient market

* Efficient market is one where the market price is an unbiased estimate of the true value of the investment.

3.primary versus secondary market: the primary market refers to the market where securities are created, while the secondary market is one in which they are traded among investors.

4. Risk-return tradeoff: The relation between risk and return that usually holds, in which one must be willing to accept greater risk if one wants to pursue greater returns. Also called risk/reward trade-off.

5. Agency (principal and agent problems): Conflicts of interest and moral hazard issues that arise when a principal hires an agent to perform specific duties that are in the best interest of the principal but may be costly, or not in the best interests of the agent. The principal-agent problem develops when a principal creates an environment in which an agent has incentives to align its interests with those of the principal, typically through incentives. Principals create incentives for the agent to act as the principal wants because the principal faces information asymmetry and risk with regards to whether the agent has effectively completed a contract.

6. market information and security prices and information asymmetry :