# Economic Concepts - Expected Value, Amortization, Cash Flows

Please provide definitions of the following:

Expected Value, Amortization, Cash Flows

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Hi there,

If I am understanding your request, you are asking for definitions for the words 'expected value', 'amortization' and 'cash flows'.

Expected Value:

In probability theory (and especially gambling), the expected value (or mathematical expectation) of a random variable is the sum of the probability of each possible outcome of the experiment multiplied by its payoff ("value"). Thus, it represents the average amount one "expects" to win per bet if bets with identical odds are repeated many times. Note that the value itself may not be expected in the general sense; it may be unlikely or even impossible. A game or situation in which the expected value for the player is zero (no net gain nor loss) is called a "fair game."

Amortization:

Amortization is the distribution of a single lump-sum cash flow into many smaller cash flow installments, as determined by an amortization schedule. Unlike other repayment models, each repayment installment consists of both principal and interest. Amortization is chiefly used in loan repayments (a common example being a mortgage) and in sinking funds. Payments are divided into equal amounts for the duration of the loan, making it the simplest repayment model. A greater amount of the payment is applied to interest at the beginning of the amortization schedule, while more money is applied to principal at the end.

Cash Flows:

In finance, cash flow refers to the amounts of cash being received and spent by a business during a defined period of time, sometimes tied to a specific project.

In accounting, a cash flow projection sets out all the expected payments and receipts in a given period. Managers use cash-flow projections to arrange for employees and creditors to be paid at appropriate times.

source: http://en.wikipedia.org/wiki/Cash_flows

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