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∞

Discount Factors: Market Prices for Future Dollars

Where do discount factors come from, and why would anyone pay only 97 cents today for a dollar guaranteed next year?

Loading…

←Previous Dates as Currencies: Building Net Present Value Next A Worked Net Present Value and Its Assumptions →

Your summary note

1. Reading an exchange rate off a live auction
  Record the auction of a claim to $1 in one year clearing at $0.97, state what the $3\%$ discount says about the issuer, and note the five-year claim is priced the same way.
2. Discount factors $\left(\frac{\text{\textdollar}_t}{\text{\textdollar}_0}\right)$ and the market's role
  Record the second name for these exchange rates and their typical size, and state the market as the source of the procedure's single input, aggregating everyone's judgment in place of invented numbers.
3. Impatience, not risk, as what is discounted
  Record that certainty leaves no default risk, state impatience as what is discounted in both framings — postponed consumption and lending the dollar out — and keep inflation apart as a separate idea.
Attempt 1 of 2