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Finance: Money, time and risk
Finance is the discipline of comparing money across time honestly.
Time value of money
A dollar today beats a dollar next year, because today’s dollar compounds. Every valuation is that idea with arithmetic attached.
PV = FV/(1+r)^tRisk-return tradeoff
Expected return compensates for risk you cannot diversify away. Diversification kills the risk that kills you; the rest is priced.
What this course teaches
Nine units: time value of money, statements and ratios, bonds, stocks, capital budgeting, risk and return, capital structure, personal finance, and international finance.
Flashcard
PV = FV/(1+r)^t
Present value formula
Discount future cash by compounded opportunity cost to compare across time.
Check your understanding
A project’s NPV at the required return is exactly zero. The project: