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Finance Theory I - Week 1 - Complete

Chapter 1 - Value - Goals and Governance of the Firm

Corporations invest in real assets
-generate cash inflows and income
-tangible - machinery, buildings
-intangible - brand names, patents

Financial manager faces two questions
-what investments should the corporation make - involves spending money
-how should it pay for those investments - involves raising money

Secret of success is to increase value of the corporation and stock price
-how to do it?
-how well all managers and employees work to increase value
-identify risks and make sure they are managed properly

Corporation can
-invest in new assets
-or give cash back to shareholders

Opportunity cost of capital that shareholder contribute
-can the corporation add value and earn a higher return than shareholders can earn for themselves

Reoccurring themes
-Maximizing value
-Opportunity cost of capital
-Crucial importance of incentives and governance

Financial asses or securities
-corporation sells claims on the assets and on the cash flow that they will ge…

Finance Theory I

MIT OCW Finance Theory I

This course introduces the core theory of modern financial economics and financial management, with a focus on capital markets and investments. Topics include functions of capital markets and financial intermediaries, asset valuation, fixed-income securities, common stocks, capital budgeting, diversification and portfolio selection, equilibrium pricing of risky assets, the theory of efficient markets, and an introduction to derivatives and options.

Video Lectures