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∞

01Leverage: How a 10% Fall Becomes a 200% Loss 02Who Absorbs the Loss: Walking Away, Rate Cuts, Bailouts 03Last in Line: Chapter 11 and How Lehman's Equity Hit Zero 04Inflation vs. Time Value: Wealth and the Price Index 05Real Returns: Match the Discount Rate to the Cashflow Problem set0/10 Problem set 20/10 MIT problem set0/7 Practice∞

Inflation vs. Time Value: Wealth and the Price Index

Why is a dollar buying less next year a completely different claim from preferring a dollar today?

Loading…

←Previous Last in Line: Chapter 11 and How Lehman's Equity Hit Zero Next Real Returns: Match the Discount Rate to the Cashflow →

Your summary note

1. Impatience versus purchasing power
  Record the distinction between the preference for money now and a claim about what a dollar buys, state that inflation runs in either direction, and note the 2008 energy-price path.
2. Wealth $W_t$ paired with the price index $I_t$
  State that consumption rather than a wealth total measures how well off you are, write the pairing of $W_t$ with the basket price $I_t$ , and list what the basket holds.
3. Cost of living $I_{t+k}/I_t = (1+\pi)^k$
  Write the ratio of the index levels at $t$ and $t+k$ as a constant growth rate $\pi$ per period, and record that $\pi$ is only a variable name for the inflation rate.
Attempt 1 of 2