How are asset values determined? Is the present value positive? - The value today exceeds the investment that is required A positive net present value implies that the rate of return on investment is higher than your opportunity cost of capital.
Perpetuity investment - steady stream of cash flows forever Annuity investment - steady stream for a limited period
Money has a time value - $ x (1 + r)t Value of investment 1 year $ x (1 + r) 2 year $ x (1 + r)2
in year 2 you earn interest on both your initial investment and the previous year's interest - compound interest
Calculating Present Values
How much do you need to invest today to get a certain amount at the end of a year?
Lecture starts at 19:17
Professor continues to mention that we won't understand everything right away and that we have to build knowledge. It will all come together and we will have an epiphany of understanding.
Cash Flow - money that is c…