Finance Theory I MIT

This lecture introduces the framework of financial analysis, the flow model of the economy, the factors that affect financial decisions, and the fundamental principles of finance.

This lecture presents the definition of an asset as a sequence of current and future cash flows, and the implications of that definition. Valuation of cash flows is presented in the context of time, certainty, and the present value operator.

This lecture covers examples on calculating net present value, comparing perpetuities and annuities, and conventions for compounding.

This lecture starts with a discussion of leverage ratio with an example from Lehman Brothers. The lecture then covers inflation, real and nominal rate of return, trading frequency, the framework for valuation with an example of a coupon bond.

This lecture introduces spot rates and forward rates in the context of yield curves and interest rate forecasts, and models for term structure interest rates. Examples are given during lecture using data from U.S. Treasury Securities.

This lecture continues to work through the valuation of a coupon bond, and using the law of one price in working with multiple coupon bonds. The lecture also covers methods for measuring the interest-rate risks of a bond.