Lecture1 - Financial Economics Econ 171a Lecture1...

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Financial Economics Econ 171a Lecture1: Introduction Time Value of Money Review of Statistics
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Syllabus Prof. Rimma Yusim [email protected] Teaching Assistant: Thang Tan Nguyen
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Office Hours My office hours: Wednesday 11a.m.-12p.m. PhD room TA’s office hours will be determined The material will be posted shortly after class on LATTE
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Textbook The textbook for the class is “Investments” by Bodie, Kane and Marcus, 7 th edition
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What is finance all about? What will we cover in this course? Suppose you have $1000 to spare What can you do with this money?
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Suppose you have $1000 to spare… There are many options Buy a stock Buy a bond Put the money in the bank Buy lottery tickets Put it under your mattress Borrow and invest more than $1000 Invest in mutual fund
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Things to think about How much will you get back? How risky is your investment? - What is the upside - What is the downside How much you are prepared to lose ( your risk preference)? Should you invest in one less risky asset? Should you invest in many assets instead? How is the asset priced?
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Topics covered… Time value of money Types of financial securities Risk and return Portfolio theory Market Equilibrium- CAPM and APT Bond Pricing Equity Valuation Options
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Essential nature of investment Reduced current consumption Planned later consumption Real Assets Assets used to produce goods and services Generate net income to the economy Financial Assets Claims on real assets Define the allocation of income among investors
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Balance Sheet – U.S. Households
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Domestic Net Worth
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Major Classes of Financial Assets Fixed-income securities: promise either a fixed stream of income or a stream of income that is determined by a specified formula. Corporate bond- bondholder receives a fixed amount of interest every year Floating-rate bonds promise payments that depend on current interest rate( for example 2% above the interest on Tbills). Equity:
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This note was uploaded on 04/17/2008 for the course ECON 171A taught by Professor Yusim during the Spring '08 term at Brandeis.

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Lecture1 - Financial Economics Econ 171a Lecture1...

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