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 f 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 f nance, e.g. in a hedge fund or an investment bank (BUT: this is not your typical corporate f 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 f 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 f nancial markets and a lot of research in Development Economics focused on f 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 == > chooseanyyea ro rSummerInst ituteo fanyyea r
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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
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lec1 (with answers and additional explanations) - Econ 138...

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