Measures a specific stock's volatility relative to the broader market. 4. Valuation Models

Unlike simple interest, which is calculated only on the principal, compound interest is calculated on the principal plus the accumulated interest of previous periods.

Even small differences in percentage rates or the frequency of compounding (monthly vs. annually) can lead to massive differences in wealth over decades. 3. Risk and Probability

A complex mathematical equation used to determine the fair price of stock options, incorporating time, volatility, and interest rates. 5. Portfolio Theory

In math, "risk" is often expressed as . Investors use statistical tools to predict the likelihood of an investment's return: