lec1 (with answers and additional explanations)

lec1 (with answers and additional explanations) - Econ 138...

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Econ 138 Financial and Behavioral Economics Lecture 1 Introduction + the MM Theorem Ulrike Malmendier UC Berkeley Tu, January 22, 2008
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Outline 1. Organization: Syllabus, Course Requirements 2. The Basics of CF: Intro NPV Modigliani-Miller Theorem
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1 Organization 1.1 Who am I? Ulrike Malmendier Assistant Professor, Department of Economics, Berkeley (previously Stanford GSB) Background: Bonn (Germany) undergraduate (Math/Econ, Law), Bonn/Oxford PhD (Law), Harvard PhD (BusEc) Behavioral Economics/Finance, Corporate Finance; Applied Micro, Organizational Economics, Contract Theory Evans 643 OH: Th 12:30-2:30pm Assistant: Judi Chan (Evans 645) OH: MW 7:15am-2:15pm, TTh 7:15am-4:15pm, F 7:15-1:15pm
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1.2 Who are you? Undergraduate students with advanced training in micro-economics and math, or PhD students in related fi elds Requirements — 100A or 101A If you have taken 100A instead of 101A, it is strongly recommended that you also have taken advanced theory classes such as Econ 104 and/or have advanced training in math (e.g. Real Analysis). — 1 semester of statistics You also need some familiarity with econometrics. Highly recom- mended to have taken an econometrics class (140 or 141). — Not a requirement: Econ 136 (but will make this class easier). If you are interested in Finance, take both classes, in either order. — STATA (software for the empirical homework)
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Your interests looking for a challenging (and hopefully interesting) advanced class; consider going to grad school in Economics or in Finance; consider a career in fi nance, e.g. in a hedge fund or an investment bank (BUT: this is not your typical corporate fi nance class; this will be much more challenging from a mathematical / technical perspective; link more to the deeper questions in economics; link much less to practical issues in banking); your main interest is not fi nance, but for example Political Economy, Institutional Economics, or Development Economics. This class might still be of interest since some of the most interesting work in Politi- cal Economy is about the regulation of fi nancial markets and a lot of research in Development Economics focused on fi nancing instruments such as Microcredit Institutions, which we will cover in class.
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1.3 What is this course? Let’s go over the syllabus together. Go to www. nber.org/confer == > choose any year or Summer Institute of any year == > choose cf (also entrepreneurship, corporate governance, behavioral fi nance)
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2 The Basics of Corporate Financing 2.1 The Big Picture Finance up to the early 1970s: Arrow-Debreu general equilibrium model of frictionless markets (per- fectly competitive and and so-called ‘complete’ market, no taxes, no transaction costs, no informational asymmetries). Pricing of fi nancial securities.
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