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What is Basic Finance Tools Explained about?

This chapter discusses key concepts in finance including present value, risk aversion, and diversification. It introduces present value as a method to compare sums of money from different times by discounting future values. People are generally risk averse due to diminishing marginal utility, so they use insurance and diversification to manage risk. Diversification reduces risk by combining unrelated assets whose returns are not strongly correlated so their high and low returns average out.

Author

Abdul Qadeer Zawri

Language

EN