Class #1 of Investments @ebs.edu by Prof. Rasa Karapandza

This is the first class of my Investments lectures of 2011. In this class I first two chapters of the Brealey-Myers-Allen book.

The opening chapter provides the students with an overview of the field of finance and a brief overview of the book. The chapter briefly explains the role of corporations, financial managers and financial markets in the financial decision making process. The success of any firm in financial management is measured by the increase in the increase in the value of the firm. The financial decisions made by firms are generally geared towards this objective. Generally, there are two types of financial decisions that are made in a corporation: investment decisions and financing decisions. In order to make these decisions a financial manager not only uses input from the corporation, but also from financial markets. Related topics, such as different forms of organizing a business, the role of the financial manager, and the importance of well-functioning financial markets in the financial decision making process, are discussed.

This chapter describes the mechanics of calculating present values of lump sum amounts, perpetuities, annuities, growing perpetuities, growing annuities and unequal cash flows. Other related topics like simple interest, frequent compounding, continuous compounding, and nominal and effective interest rates are discussed. Introduces the important concept of value additive property and emphasizes that market interest rates will adjust to prevent "money machines," i.e., to prevent arbitrage.

The main purpose of this lecture is to help my students revise what they have learned during the live lecture, nevertheless others are welcome to watch these lectures. Unfortunately, in this video you can see only my slides and hear my voice. You can not see me jumping around the classroom and handwaving as I usually do. Also, I try to keep my politically incorrect jokes for the classroom and out of this video. This should be enough of motivation for my students to keep coming to my classes and use these videos only to revise what they have learned in the classroom.

The second chapter introduces the concept of present value and shows why a firm should maximize the market value of the stockholders' stake in it. I explain the linkage between net present values and well-functioning financial markets using two-date, certain-world framework. The concept of risk is introduced here. The importance of financial markets is emphasized. The net present value rule and the rate of return rule are explained in great detail. This chapter discusses different views on the main goal(s) of a corporation. It explains that executives from different countries have differing views on this subject.

Please excuse me if my Slavic accent is too hard for your ears. I was considering exercises to improve my accent but in the forms that my students used to evaluate my teaching in 2010 two girls stated that they find my accent sexy. That made me reconsider my decision so I have decided to stick with my sexy accent and you will have to live with it.

Category:

Education

Tags:

• Finance
• Investments
• Class
• EBS
• Present
• Value
• Interest
• Rates
• Compounding
• Corporations
• Future
• Educational