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∞

Does the Currency Change an NPV's Sign?

If you value a project in yen instead of dollars, can the answer flip from accept to reject?

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Your summary note

1. Conversion at a fixed exchange rate
  Write the conversion of every cash flow by one positive number, pull that constant out of the sum, and state the result for the sign of $V_0$ .
2. A known, moving rate and the yen discount factors
  Derive $d_t^{\text{yen}} = d_t^{\text{USD}} \cdot S_0/S_t$ from chained conversions, carry it to $V_0^{\text{yen}} = S_0 \cdot V_0^{\text{USD}}$ , name the mismatch of rates that would flip a sign, and record which currency to work in.
3. Paper, and the two claims on Fannie and Freddie
  Define paper and commercial paper, then separate the owners' equity the losses left nearly worthless from the IOUs the government stood behind.
4. The September 2008 market-wide rally
  Record that S&P 500 firms holding none of the paper rose too, and trace the knock-on chain through Lehman and the other investment banks that the rescue removed.
Attempt 1 of 2