The Concept Map
What this is
Every lesson, quiz, and practice question on Oxford Ledge maps to a concept in the taxonomy below. As you work, a Bayesian mastery model tracks each concept separately — following Khan Academy’s canonical learning loop of signal → diagnosis → offer → delivery → re-check → calibration → progression — so remediation targets the specific idea you missed, not the chapter it happened to appear in.
Each concept carries a one-line intuition: the sentence we would want you to remember if you remembered nothing else. The precise thresholds behind the mastery layers are documented on the mastery methodology page.
Valuation
Estimating what an asset is worth from first principles.
- Time value of money — A dollar today is worth more than a dollar tomorrow because today's dollar can earn a return.
- Compounding — Interest earns interest — small rates compound into large sums over decades.
- Discounting — Running compounding backwards: what's tomorrow's dollar worth today at some required return?
- Perpetuity — A cash stream that lasts forever has a finite value because far-future cash flows discount to ~zero.
- Growing perpetuity (Gordon) — PV = CF / (r - g). The key is r > g; otherwise the math explodes.
- DCF intuition — Value equals the sum of all future cash flows to the owner, discounted back to today.
- Terminal value — Most of a DCF's value often lives in the terminal tail — be skeptical of any TV that's 80%+ of total.
- Weighted average cost of capital — The blended hurdle rate: equity cost × equity weight + debt cost × debt weight.
- Cost of equity — What equity holders require to bear business + market risk — CAPM is the common framing.
- Cost of debt (after-tax) — Interest is tax-deductible, so debt's real cost is rate × (1 - tax rate).
- Beta — How much a stock moves when the market moves. Beta of 1.2 means 20% more volatile than the index.
- Multiples (P/E, EV/EBITDA, P/B) — A shortcut DCF — multiples encode assumptions about growth + risk + quality.
- Relative valuation / comps — Compare to peers. Works when peers are truly similar; breaks when they're not.
- Earnings quality — Are reported earnings backed by cash, or by aggressive accruals? Cash-backed earnings are more durable.
- Growth rate intuition — Sustainable growth can't exceed reinvestment × return on reinvested capital forever.
Fundamentals / Accounting
Reading the three financial statements.
- Income statement — Revenue at the top, net income at the bottom, with costs + taxes in between.
- Balance sheet — A snapshot: what the company owns (assets) equals what it owes (liabilities) plus what's left for owners (equity).
- Cash flow statement — Cash in minus cash out, split into operating / investing / financing. Ops cash is the one that matters most.
- Working capital — Current assets minus current liabilities — the short-term liquidity cushion.
- Accruals vs. cash — Accrual accounting records revenue when earned, not when cash arrives. Big gaps between the two are a warning sign.
- Depreciation — A non-cash accounting charge that spreads an asset's cost over its useful life.
- Operating leverage — How much profit scales when revenue scales. High fixed costs = high operating leverage.
- Gross margin — Revenue minus direct costs, as a percent of revenue. The ceiling on all other profitability.
- ROE / ROIC — Return on equity / invested capital — how efficiently the business turns shareholder money into profit.
- Debt-to-equity — Higher leverage magnifies both good and bad outcomes.
- Interest coverage — EBIT divided by interest expense — how many times over the business can cover its debt payments.
- Free cash flow — Cash left after maintaining the business — what can actually be paid to owners.
- Asset turnover — Revenue divided by total assets; the operational-efficiency lever in DuPont decomposition — how many dollars of sales the company drives per dollar of assets.
- Net leverage — Net debt (total debt minus cash) divided by EBITDA; the cleaner measure of leverage in cash-rich businesses where headline debt/EBITDA overstates risk.
Credit / Fixed Income
Lending risk, bond pricing, and default mechanics.
- Bond pricing — A bond's price is the present value of its coupons plus final principal.
- Yield to maturity — The IRR of holding a bond from now to maturity — the single rate that equates price to cash flows.
- Coupon vs. yield — Bond prices and yields move inversely — a rising rate drops the bond's price.
- Duration — How much a bond's price drops when rates rise 1% — longer maturity = more duration = more rate sensitivity.
- Modified duration — Duration divided by (1 + yield) — the linear price-change estimator for small rate moves.
- Convexity — Bond price-yield curve bows — convexity captures the second-order correction duration alone misses.
- Credit spread — The extra yield over a risk-free treasury — compensation for default risk.
- Default risk — Probability the borrower misses a payment. Not binary — it's a distribution across the life of the loan.
- Recovery rate — If default happens, what fraction of the dollar comes back? Senior-secured lenders recover more than subordinated.
- Seniority / payment waterfall — In bankruptcy, senior lenders get paid before subordinated, who get paid before equity. Position in the stack determines recovery.
- Covenants — Contract terms that let lenders pull the plug if the borrower's financials deteriorate.
- Credit rating — S&P/Moody's/Fitch grade on default risk — AAA safest, below BBB- is high-yield ('junk').
- High-yield vs investment-grade — Investment grade: low default risk, narrow spreads. High yield: double-digit default risk possible, wide spreads.
- Loan-loss reserves — Banks' pre-funded bucket for expected defaults — rising reserves signal deteriorating credit.
- DIP (debtor-in-possession) financing — Loan extended to a Chapter 11 debtor with super-priority status; required to fund operations through bankruptcy without further harm to existing creditors.
- Section 363 sale — Sale of assets free-and-clear of existing liens during Chapter 11, allowing a buyer to acquire operating businesses without inheriting legacy liabilities; subject to court approval and stalking-horse bidder dynamics.
- Chapter 11 plan confirmation — Court approval of the reorganization plan after creditor classes vote; requires absolute-priority rule compliance and a feasibility test.
Portfolio / Risk
Building diversified portfolios and measuring risk.
- Diversification — Combining uncorrelated assets reduces total risk without sacrificing expected return.
- Correlation — How two assets move together — ranges from -1 (perfectly opposite) to +1 (perfectly in-sync).
- Sharpe ratio — Return above risk-free divided by volatility — how much excess return per unit of risk.
- Volatility — Standard deviation of returns — the common proxy for risk, though it misses tail events.
- Value at risk (VaR) — The loss threshold exceeded only X% of the time — a tail-risk measure, not a worst-case.
- Drawdown — Peak-to-trough portfolio loss — matters more than volatility for real investors who might panic-sell.
- Rebalancing — Selling winners and buying losers to bring the portfolio back to target weights — enforces 'buy low, sell high'.
- Asset allocation — The split between stocks / bonds / cash / alts — drives 80%+ of long-run return variability.
- Risk premium — Extra expected return above the risk-free rate, as compensation for bearing risk.
- Market efficiency — Prices reflect available information — strong form says even insiders can't beat the market; weak form says technicals alone can't.
Macro
Rates, inflation, growth, and policy.
- Inflation — Loss of purchasing power over time — CPI measures the basket, core strips out food/energy.
- Real vs. nominal — Nominal returns are what you see. Real returns are what you keep after inflation.
- Yield curve — Plot of rates across maturities — normally upward-sloping. An inverted curve (short > long) has preceded most recessions.
- Term premium — Extra yield on long bonds as compensation for locking in — can go negative when demand for duration is high.
- Fed funds rate — The short-term rate the Fed targets — filters into every other rate in the economy.
- Quantitative easing / tightening — Fed buys bonds (QE) to push rates down / sells or lets them roll off (QT) to push rates up — the unconventional toolkit.
- Recession indicators — Leading: yield curve inversion, LEI, credit spreads. Coincident: GDP growth, unemployment. Lagging: CPI, wages.
- GDP components — Consumption + Investment + Government + Net Exports. Consumption is ~70% in the US.
- Unemployment rate — People without jobs who are actively looking / total labor force. Doesn't include people who gave up.
- Dollar strength — Strong dollar makes US exports expensive abroad and imports cheap — hurts multinational earnings.
Derivatives / Options
Options, futures, and hedging instruments.
- Call option — The right (not obligation) to buy at a set strike price — limited downside (premium), unlimited upside.
- Put option — The right (not obligation) to sell at a set strike price — insurance on a long position.
- Intrinsic vs. time value — Option price = how much it's in-the-money right now + how much time + volatility could add.
- Implied volatility — The market's expected future volatility, backed out of the option's price. High IV = expensive options.
- Delta — How much the option price changes when the underlying moves $1. Deep ITM calls approach delta = 1.
- Theta — Time decay — an option loses a little value every day it approaches expiry, all else equal.
- Hedging — Using options / futures to offset risk on a position — reduces upside but cuts tail losses.
- Put-call parity — C - P = S - PV(K). An arbitrage identity between calls, puts, stock, and bonds — if it breaks, someone has free money.
Equity markets
Stock mechanics and capital return.
- Market capitalization — Price per share times shares outstanding — the equity market's view of company value.
- Dividend yield — Annual dividend divided by price — income return from a stock.
- Dividends vs. buybacks — Two ways to return capital. Buybacks are tax-deferred (gains taxed on sale); dividends are taxed now.
- Stock split — Cosmetic — 2-for-1 split halves the price and doubles the shares. Same total market cap.
- Float vs. shares outstanding — Float is the tradeable supply — total shares minus insider + restricted holdings.
- Index inclusion — Joining the S&P 500 triggers forced buying by index funds — short-term price pop, long-term lower cost of capital.
- Bid-ask spread — The gap between the highest price a buyer will pay (bid) and the lowest price a seller will accept (ask); the round-trip cost of accessing market liquidity.
- EPS and dilution — Earnings per share (net income / shares outstanding); dilution increases the denominator via stock-based compensation, secondary offerings, or convertibles vesting, eroding per-share economics.
BDC & credit specialty
Business Development Companies and direct lending.
- BDC basics — Externally-managed credit funds that lend to middle-market companies — distribute 90%+ of income to shareholders for tax pass-through.
- Senior-secured lending — Top of the capital stack, collateralized — lowest default risk and first-dollar recovery.
- Floating-rate debt — Coupon resets with a reference rate (SOFR, formerly LIBOR) — borrowers take rate risk, lenders get protection.
- PIK interest — Paid-in-kind: interest accrues onto the principal rather than paying cash. Looks fine on the income statement; can hide distress.
- BDC net investment income — The NII a BDC distributes to shareholders — should cover the dividend, else the dividend is unsustainable.
Behavioral Finance
Psychological biases that systematically distort investor decisions away from first-principles rationality.
- Anchoring bias — Investors over-weight the first piece of information they see (entry price, prior estimate) and adjust insufficiently from it.
- Recency bias — Recent events feel more representative than they statistically are; investors extrapolate the last few quarters as if they were the new regime.
- Mental accounting — Investors treat money in mentally-separate buckets (retirement vs trading vs gift) even though it is all fungible — leading to incoherent allocation across buckets.
- Loss aversion — The pain of a $1 loss is psychologically ~2× the pleasure of a $1 gain, biasing investors toward holding losers too long and selling winners too early.
- Disposition effect — Tendency to realize gains quickly while letting losses ride — the direct portfolio consequence of loss aversion + mental accounting interacting.
- Tax-loss harvesting (behavioral angle) — The psychological resistance to realizing losses (loss aversion) is the main reason investors leave deferred-tax value unclaimed; the technique itself is mechanical.
- Framing effect — The same statistical outcome elicits opposite choices depending on whether it is described as a gain or a loss; investor decisions are not frame-invariant.
- Herding behavior — Investors take comfort in moving with the consensus even when the consensus has weakened first-principles support; explains momentum bubbles and capitulation.
- Overconfidence bias — Investors systematically over-estimate the accuracy of their forecasts and the precision of their information set, leading to over-trading and under-diversification.
Personal Finance
Tax-advantaged accounts, insurance, retirement planning, and the day-to-day mechanics of household financial management.
- Payroll and withholding — Federal income tax is collected throughout the year via paycheck withholding; the W-4 form sets the rate. The April tax return reconciles withholding vs liability.
- Health insurance basics — Premium + deductible + copay + out-of-pocket-max are the four cost levers; an HDHP trades a higher deductible for a lower premium + HSA eligibility.
- Retirement-account types — 401(k) / 403(b) / IRA / Roth IRA / SEP-IRA differ on contribution limits, tax treatment (pre-tax vs post-tax), and access rules (age-restricted withdrawals).
- Roth vs Traditional — Traditional defers tax to retirement (when income is typically lower); Roth pays tax today (when income is locked in) and shelters all future growth. Choice depends on expected lifetime marginal-rate path.
- Social Security claiming-age strategy — Benefits ratchet up ~7-8% per year of delayed claiming up to age 70; longevity expectation, spouse coordination, and bridge-income availability determine the optimal age.
- HSA mechanics — Health Savings Account is triple-tax-advantaged: contributions pre-tax, growth tax-free, withdrawals for qualified medical tax-free. Effectively a stealth retirement account.
- Long-term care insurance — Long-term care (in-home nursing / assisted living / memory care) is excluded from Medicare; private LTC insurance bridges the gap, with premiums rising sharply if purchased after 60.
Real Estate
REIT and direct property analysis — cap rates, FFO/AFFO, and the operating-vs-financial returns distinction unique to real estate.
- Cap rate — Net operating income (NOI) divided by property value; the rate a buyer earns from operations alone, ignoring leverage and appreciation. Comparable across markets.
- FFO and AFFO — Funds from operations (FFO = net income + depreciation - property-sale gains) is the REIT-equivalent of earnings; AFFO further subtracts recurring capex. Both are the headline metrics REITs report instead of EPS.
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