lect2 - Today's L ectur e Financial Markets Borrowing and...

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1 Today's Lecture Financial Markets  Borrowing and Lending  Net Present Value Administration Select class rep Waiting List questions  Barbara Felkins  [email protected] Business majors can call her or drop in 9-2
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2 What is Finance? The process by which markets are used to  allocate investment (as opposed to meat, fish,  real estate etc.) The field has enlarged beyond this.  It  encompasses many other things as well, some  quite loosely related to this core definition.  This course will concentrate on the core  definition.
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3 Investment Where do people get the money to invest? Do they have any other choices besides  investing this money? What happens to investments? 
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4 Markets Consider a student (Jodie) and a basketball  player (Michael) . Michael currently makes $1,000,000 a year. Student makes no money, but still has to finance  her living expenses as well as tuition fees. What happens if no financial market exists?
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5 The Deal Michael lives the high life.  He has only  $50,000 left to invest. So does Jodie.  She needs $50,000 to cover  living expenses and tuition. Michael lends Jodie $50,000.  Jodie agrees to  pay Michael back $55,000 in 1 year. 
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6 The Deal (continued) In the language of finance: Jodie pays Michael interest of 10% per annum. The original amount of the loan (i.e., $50,000) is 
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This note was uploaded on 10/02/2009 for the course UGBA 08547 taught by Professor Odean during the Fall '09 term at Berkeley.

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lect2 - Today's L ectur e Financial Markets Borrowing and...

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