How Do Futures Contracts Work?
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Futures contracts are one of the most important financial innovations in history, but they are often misunderstood. Find out this contract is used to transfer risk between different parties.
The wealth effect is a psychological phenomenon that causes people to spend more as the value of their assets rises. The premise is that when consumers' homes or investment portfolios increase in value, they feel more financially secure, so they increase their spending.
A collateralized debt obligation, or CDO, is a structured financial product backed by a pool of loans. When a retail or commercial bank approves loans such as mortgages, auto loans or credit cards to individuals or businesses, these loans are then sold to an investment bank.
The discount rate is the interest rate you need to earn on a given amount of money today to end up with a given amount of money in the future. Let's say you need $1,000 one year from now to go on vacation. We can use the discount rate to determine how much money you would need to have today to have $1,000 in one year.
Most investment choices involve a tradeoff between risk and reward. The "Efficient Frontier" is a modern portfolio theory tool that shows investors the best possible return they can expect from their portfolio, given the level of volatility they're willing to accept.
Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality
Learn about the differences between these two words and how each one is used in the stock market.
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