Topics for Midterm I

Chapter 15
	Present Value
	Future Value
	rate of time preference vs. rate of interest
	Net Present Value
	Yield curve and choice of interest rate
	Market determination of an interest rate 
	Role of expectations in determining present value
	Efficient Markets
	Relation of Price/Earnings Ratio or Dividend Price ratio to Present Value
	Valuing a Cash Flow Stream
	Role of Depreciation and Taxes in Cash Flow
	Cost of Debt
	Cost of Equity

Chapter 1
	Principal-Agent Problem
	Executive compensation
	Supply and Demand
	Determination of equilibrium price and quantity
	What shifts demand?
	What shifts supply?

Chapter 14
	Probability
	Expected Return
	Gambling versus investing
	Decision trees
	Standard deviation and risk
	Coefficient of variation
	Attitude toward risk:  Indifference curves
	Market tradeoffs between risk and expected return
	Risk aversion, risk neutral and risk loving behavior
	Certainty Equivalence
	Markets for Insurance:  Tradeoffs between agents with different risk aversion
	Adverse Selection
	Moral Hazard
	Risk adjusted discount rates
	Biased expectations due to bised forecasts of costs or returns

Chapter 2
	Profit Maximization: roles of marginal revenue and marginal cost

Chapter 4
	Demand Function
	Theory of the consumer: assumptions
	Indifference Curves
	Budget Constraints
	consumer equilibrium: relative marginal utilities equals relative prices
	income and substitution effects
	Derivation of market demand from individual demand

Chapter 3
	Elasticity: Own price, cross-price, income
	Arc elasticity
	Optimal mark-ups
	elasticity of demand and total revenue: the profitable region of the demand curve
	Laws of derived demand
	Market elasticity vs. Firm elasticity of demand
	market entry and the elasticity of demand
	Inferior Goods, Normal Goods, Luxury Goods and Necessities
	Substitutes, Complements and Unrelated Goods

Chapter 5
	Demand analysis: 
		surveys
		market simulations
		test-markets
		regressions with secondary data 
	Standard deviation, t- statistics, R-square
	Use of demand structure to forecast demand