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4434Discounting Future Income and Present Value
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Read the lecture and try to answer the interspersed questions.Tue, 27 May 1997 00:00:00 -0700תורת המימון: תקצוב הון בתנאי אי-ודאות
https://www.merlot.org/merlot/viewMaterial.htm?id=443237
הרצאה מתוך הקורס תורת המימון - ניהול פיננסי של גופים עסקיים. ההרצאה עוסקת בתקצוב הון בתנאי אי-ודאות.Wed, 7 Apr 2010 06:02:06 -0700Internal Rate of Return (Economics)
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Read the lecture and try to answer the interspersed questions.Tue, 27 May 1997 00:00:00 -0700Lecture 1 - Why Finance?
https://www.merlot.org/merlot/viewMaterial.htm?id=985655
This video was recorded at YALE - ECON 251 - Financial Theory. This lecture gives a brief history of the young field of financial theory, which began in business schools quite separate from economics, and of my growing interest in the field and in Wall Street. A cornerstone of standard financial theory is the efficient markets hypothesis, but that has been discredited by the financial crisis of 2007-09. This lecture describes the kinds of questions standard financial theory nevertheless answers well. It also introduces the leverage cycle as a critique of standard financial theory and as an explanation of the crisis. The lecture ends with a class experiment illustrating a situation in which the efficient markets hypothesis works surprisingly well.Tue, 10 Feb 2015 15:39:38 -0800Lecture 10 - Dynamic Present Value
https://www.merlot.org/merlot/viewMaterial.htm?id=985673
This video was recorded at YALE - ECON 251 - Financial Theory. In this lecture we move from present values to dynamic present values. If interest rates evolve along the forward curve, then the present value of the remaining cash flows of any instrument will evolve in a predictable trajectory. The fastest way to compute these is by backward induction. Dynamic present values help us understand the returns of various trading strategies, and how marking-to-market can prevent some subtle abuses of the system. They explain how mortgages work, why they're called amortizing, and what is meant by the remaining balance. In the second half of the lecture we turn to an important application of present value thinking: an analysis of the troubles facing the Social Security system.Tue, 10 Feb 2015 15:39:51 -0800Lecture 11 - Social Security
https://www.merlot.org/merlot/viewMaterial.htm?id=985675
This video was recorded at YALE - ECON 251 - Financial Theory. This lecture continues the analysis of Social Security started at the end of the last class. We describe the creation of the system in 1938 by Franklin Roosevelt and Frances Perkins and its current financial troubles. For many Democrats, Social Security is the most successful government program ever devised and for many Republicans Social Security is a bankrupt program that needs to be privatized. Is there any way to reconcile the views of Democrats and Republicans? How did the system get into so much financial trouble? We will see that the mess becomes quite clear when examined with the proper present value approach. Present value analysis reveals the flaws in the three most popular analyses of Social Security, that the financial breakdown is the fault of the baby boomers, that privatization would bring young investors a better return than they anticipate getting from their social security contributions, and that privatization is impossible without compromising today's retired workers.Tue, 10 Feb 2015 15:39:52 -0800Lecture 12 - Accountability and Greed in Investment Banking
https://www.merlot.org/merlot/viewMaterial.htm?id=986014
This video was recorded at PLSC 270 - Capitalism: Success, Crisis and Reform. Professor Rae explores the creation of incentives and disincentives for individual action. The discussion begins with the Coase Theorem, which outlines three conditions for efficient transactions: 1) clear entitlements to property, 2) transparency, and 3) low transaction costs. Professor Rae then tells the story of a whaling law case from 1881 to highlight the power of incentives and property rights. The conversation then moves to Hernando de Soto's portrayal of the development of property rights in the American West, and then shifts to a discussion of New Haven deeds, property values, and valuation of real estate. The lecture concludes with a discussion of Mory's.Tue, 10 Feb 2015 15:43:50 -0800Lecture 12 - Overlapping Generations Models of the Economy
https://www.merlot.org/merlot/viewMaterial.htm?id=985677
This video was recorded at YALE - ECON 251 - Financial Theory. In order for Social Security to work, people have to believe there's some possibility that the world will last forever, so that each old generation will have a young generation to support it. The overlapping generations model, invented by Allais and Samuelson but here augmented with land, represents such a situation. Financial equilibrium can again be reduced to general equilibrium. At first glance it would seem that the model requires a solution of an infinite number of supply equals demand equations, one for each time period. But by assuming stationarity, the whole analysis can be reduced to one equation. In this mathematical framework we reach an even more precise and subtle understanding of Social Security and the real rate of interest. We find that Social Security likely increases the real rate of interest. The presence of land, an infinitely lived asset that pays a perpetual dividend, forces the real rate of interest to be positive, exposing the flaw in Samuelson's contention that Social Security is a giant, yet beneficial, Ponzi scheme where each generation can win by perpetually deferring a growing cost.Tue, 10 Feb 2015 15:39:53 -0800Lecture 13 - Demography and Asset Pricing: Will the Stock Market Decline when the Baby Boomers Retire?
https://www.merlot.org/merlot/viewMaterial.htm?id=985679
This video was recorded at YALE - ECON 251 - Financial Theory. In this lecture, we use the overlapping generations model from the previous class to see, mathematically, how demographic changes can influence interest rates and asset prices. We evaluate Tobin's statement that a perpetually growing population could solve the Social Security problem, and resolve, in a surprising way, a classical argument about the link between birth rates and the level of the stock market. Lastly, we finish by laying some of the philosophical and statistical groundwork for dealing with uncertainty.Tue, 10 Feb 2015 15:39:55 -0800Lecture 14 - Quantifying Uncertainty and Risk
https://www.merlot.org/merlot/viewMaterial.htm?id=985681
This video was recorded at YALE - ECON 251 - Financial Theory. Until now, the models we've used in this course have focused on the case where everyone can perfectly forecast future economic conditions. Clearly, to understand financial markets, we have to incorporate uncertainty into these models. The first half of this lecture continues reviewing the key statistical concepts that we'll need to be able to think seriously about uncertainty, including expectation, variance, and covariance. We apply these concepts to show how diversification can reduce risk exposure. Next we show how expectations can be iterated through time to rapidly compute conditional expectations: if you think the Yankees have a 60% chance of winning any game against the Dodgers, what are the odds the Yankees will win a seven game series once they are up 2 games to 1? Finally we allow the interest rate, the most important variable in the economy according to Irving Fisher, to be uncertain. We ask whether interest rate uncertainty tends to make a dollar in the distant future more valuable or less valuable.Tue, 10 Feb 2015 15:39:56 -0800