Production opportunity
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Time preference for consumption. The preferences of consumers for current consumption as opposed to saving for future consumption.
- Risk. In a financial market context, the chance that an investment will provide a low or negative return.
- Inflation. The amount by which prices increase over time.
- Real risk-free rate of interest, r*. The rate of interest that would exist on default free U.S. Treasury securities if no inflation were expected.
- Nominal risk-free rate (quoted risk-free rate), r/RF. The rate of interest on a security that is free of all risk; rRF is proxied by the T-bill rate or the T-bond rate; rRF includes an inflation premium.
- Inflation premium. A premium equal to expected inflation that investors add to the real risk-free rate of return.
- Default risk premium (DRP). The difference between the interest rate on a U.S. Treasury bond and a corporate bond of equal maturity and marketability.
- Liquidity premium (LP). A premium added to the equilibrium interest rate on a security if that security cannot be converted to cash on short notice and at close to its “fair market value.
- Interest rate risk. The risk of capital losses to which investors are exposed because of changing interest rates.
- Maturity risk premium (MRP). A premium that reflects interest rate risk.
- Reinvestment rate risk. The risk that a decline in interest rates will lead to lower income when bonds mature and funds are reinvested.
- Term structure of interest rate. The relationship between bond yields and maturities.
- Yield curve. A graph showing the relationship between bond yields and maturities.
- Nominal yield curve. An upward-sloping yield curve.
- Inverted yield curve (abdominal yield curve). A downward-sloping yield curve.
- Humped yield curve. A yield curve where interest rates on intermediate-term maturities are higher than rates on both short and longterm maturities.
- Pure expectations theory. A theory that states that the shape of the yield curve depends on investors' expectations about future interest rates.
- Foreign trade deficit. The situation that exists when a country imports more than it exports.
Production opportunity is the investment opportunities in productive (cash generating) assets.
Definitions
According to Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston (15th edition),
- Production opportunity. The investment opportunities in productive (cash generating) assets.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
