Foundations of Finance

01Defining Finance and the Financial System 02Valuation and Management: The Two Challenges 03Stocks, Flows, and the Five Cash-Flow Decisions 04Time, Risk, and the Six Principles of Finance 05How to Learn Finance: Practice and Study Habits Problem set0/10 Problem set 20/10 Practice∞

Present Value

01Information and Price: An Auction and Fannie Mae 02Who Pays for the Fannie and Freddie Guarantee?03What Counts as an Asset: Patents, Secrets, Brands 04An Asset as a Sequence of Dated Cashflows 05The Value Operator and the Cashflow Timeline 06Dates as Currencies: Building Net Present Value 07Discount Factors: Market Prices for Future Dollars 08A Worked Net Present Value and Its Assumptions 09The Opportunity Cost of Capital and Present Value Problem set0/10 Problem set 20/10 MIT problem set0/5 Practice∞

01Does the Currency Change an NPV's Sign?02Moral Hazard and Contagion: Where Bailouts Stop 03The NPV Rule at Work, and Choosing the Rate 04The Perpetuity: Why Cash Forever Is Worth C/r 05Reading the Rate Off a Perpetuity's Price 06The Growing Perpetuity, and When Growth Outruns r 07Building the Annuity from Two Perpetuities 08The Annuity Discount Factor and Mortgage Payments 09APR, the Effective Annual Rate, and Compounding Problem set0/10 Problem set 20/10 MIT problem set0/13 Practice∞

Stocks, Flows, and the Five Cash-Flow Decisions

How does the difference between a bathtub's water level and its faucet rate explain the balance sheet and the income statement?

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Your summary note

1. Stock versus flow
  Define a stock as a level and a flow as its rate of change, and record both the bathtub picture and the variable-and-first-derivative version of the same distinction.
2. The balance sheet as a snapshot of wealth
  Draw the two-column balance sheet with cash, capital and intangibles on the asset side against debt and equity on the liability side, and state that both totals match.
3. The sources-equal-uses identity
  Write out $\Delta S + \Delta B + NI = I + D + T + C$ , label each side as sources or uses of funds, and record the per-period timing.
4. The five cash-flow decisions, corporate and household
  List the five in order — raising cash, investing in real assets, generating cash from operations, reinvesting, returning cash — then set the household version beside them and name the change of objective.
Attempt 1 of 2