Math Of Finance
NOTES FOR WEEK 1 – JUNE 02, 2007
I. OVERVIEW OF FINANCE
Finance – is an inter-temporal choice between spending today and spending tomorrow.
Investing – is a productive activity
Productive activity can be classified as:
a. Directly – putting up your own a business.
b. Indirectly - if there is an intermediary assigned to take care of your investments such as banks, investment bankers, etc.
Saver Productive activity
Financial instrument
– Claim on cash flows of a productive activity that is being funded
– Needs computation to value the instrument
Types of Financial Instruments:
Debt Equity
Secured Debt Converting Debt
Unsecured Debt Convertible Preferred
Preferred
Common
Tree Model of Finance
- consider the value of the asset
- expected return/yield of the asset
Cow Model of Finance
- Produce same result regardless of scenarios, also known as cash cow model.
Principle of Finance
1. Price and Rate of Return (R)......
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