Ses 2: Present Value Relations I
Вставка
- Опубліковано 20 вер 2024
- MIT 15.401 Finance Theory I, Fall 2008
View the complete course: ocw.mit.edu/15-...
Instructor: Andrew Lo
License: Creative Commons BY-NC-SA
More information at ocw.mit.edu/terms
More courses at ocw.mit.edu
Delivered in 2008, still generating knowledge flow. This lecture series is a pretty valuable asset.
Best part of lockdown -- discovering gems like this on UA-cam.
@Angie Gao Did you go though all the lectures?
@@Theferg1 ahh nope lol
@@Theferg1 I have. They're all fantastic, but if you have to skip, at least watch the last two. His personal theories around adaptive markets make a lot of sense, and his concept of irrationality as a dissonance between different parts of the brain was really eye-opening
pretty cool that this lecture was from a day or two after the financial collapse of 2008
There was more than one collapse, so what collapse are you talking about?
were there multiple financial collapses of 2008??
rayart8 😂
@@hidekitojo902 The one in 2008
Epic
This youtube class is an asset!
Asset only for the Viewers, he forgot to put ads on it to generate cashflows
@@miklovelka9797 He said an asset can still be an asset with cashflow values of zero. So this class is still an asset for him, just an asset with a zero cashflow.
@@miklovelka9797 still it is an asset for MIT because MIT has created a goodwill which is asset
Miklo Velka You know that I know that you know it's an asset.
@@miklovelka9797 he said reputation is a sort of assets right? :)
April 2024 and still these lectures are f*cking awesome! Thanks for sharing!
lectures from MIT are available freely online. What a time to be alive
In the middle of the lecture I called my friend and told her that she needs to leave everything aside and watch this video. She is a geologist and just yesterday she said that she wants to understand finance.
Prof. Lo's first lecture is a good motivator for a person like me who is new to finance. he is got amazing style to keep you hooked and looking forward for further sessions.
ua-cam.com/video/vTs2IQ8OefQ/v-deo.html
ua-cam.com/video/WQui_3Hpmmc/v-deo.html
they are worth a watch too
i happen to be a geologist watching this and i somehow read your comment!
@@mugabo2911 this is crazy because same, why are there so many geologists here hahaha
@@rebeccaangelaaperhaps because gold backs the $ and comes from the earth?
Timestamps are as follows:
Ses 2: Present Value Relations I
Auction Items and Their Values
00:00
Government Takeover of Fannie Mae and Freddie Mac
02:42
Uncertainty in Financial Markets
05:40
Government Backing for Fannie Mae and Freddie Mac
08:24
Decline of Common Stock Value
11:00
Government-Sponsored Entities and Their Mandate
13:11
Impact on Shareholders of Freddie Mac and Fannie Mae
15:53
Defining Assets in Financial Terms
18:27
The Concept of Trade Secrets as Valuable Assets
21:20
Assets: Patents, Trade Secrets, and Value Creation
23:49
The Fundamental Definition of an Asset
26:24
Assets Are Sequences, Not Sums
29:32
Assets Defined by Current and Future Cash Flows
32:10
The Value of Assets: Introduction to the Value Operator (Vt)
34:50
Perfect and Imperfect Markets: Evaluating Market Efficiency
37:45
Importance of Understanding Cash Flow Timing
40:10
Currency Conversion Analogy for Cash Flows
43:03
Converting Cash Flows to a Base Currency
46:33
Importance of Exchange Rates in Valuation
49:49
Obtaining Exchange Rates from Financial Markets
53:32
Discount Factors and Impatience in Perfect Certainty
55:53
Valuation and Management
58:49
Simplifying Assumptions for Valuation
1:02:49
The Opportunity Cost of Capital (r)
1:06:58
Building a Valuation Operator
1:11:40
Thank you 🎉
What an amazing professor! I wish my professors were as passionate and good at teaching.
MrSupernova111 Same
I feel you...
@@av7531 I fefwlovet
Good at teaching? You mean good at lying. Good at narrating... Good at story telling.
@@runethorsen8423 r u a professional hater?
To anyone cramming for an exam, the lecture starts at 19 min. Before that he discusses the recent developments in the financial crisis.
Thank you
I watched this lecture to get myself ready for a MBA program without having business or finance major in undergrad.
I think I am getting it slowly.
I am so grateful to find this channel.
*How invaluable for this to be recorded at that time.* This is beautiful
Literally right!
I'm here after the SVB crash. I feel 2008 will come again and i want to be as prepared as i can be. Not my area (i'm a mechanical engineer) but i think everyone should learn Finance at some extent. Thank you MIT for this free classes!🙏
exactly my thoughts. And Like FannieMae and FreddieMac were "takeover" First Republican Bank's assets were absorbed by JPMC on a Fire sale. Same happened across the pond with Credit Suisse absorbed by UBS. History does repeat folks!. And the best way to make sense of it all is to listen to Andrew Lo's lectures on Finance theory. Also as an Electrical Engineer this will help me assess future investment opportunities
Love how open and transparent he is discussing the circumstances of the times. He didn't shy away from any question
This is like learning physics from Einstein himself.
If Einstein teaches physics,
You will not understand anything. Art of Teaching is a science in itself.
I don't know sir if you will read this or not. But I don't think, the reason why second auction went for 60 $ was because it was bigger in size. You revealed what was there in 1st box and so student thought there will be something cool in second box too. I think even if the size of 2nd box would have been smaller then then 1st one then also the price of second box would have been reached to 60 bucks.
@@sophisticatedlyaawara1304 However I think that the knowledge inside the book may not only worth 60
@@Deshammanideep i don't think so
@@AufBerghofNAM Teaching is a profession by itself. There's no guarantee that great researchers can be great teachers.
I'm being mesmerized. Professor Lo's the best of the best! His positive energy, passion and knowledge can blow you away. And I'm learning this for free!!! Thank you so much MIT!
this is a perfect example of fallacy of authority, he justified all the bad loans that were handed out by saying what about the person who had subprime but paid all their debts on time, that is the exception tot he rule, the reason the housing market imploded was due to vast majority of subprime folks not being able to make monthly mortgage payments, millions of them, and then having to foreclose on their homes back to the banks
This professor is incredible! I study finance at USQ in Aus and this series has sparked my passion back to life. My boring lecturers really butcher this material. Love the passion and making this subject enjoyable!
Hey! Do you know which brealy, myers and allen book professor lo talks about that the students were to read? Do reply if you know!
Begginer in finance I struggled to calculate the intrinsic value with the DCF method. But with this lesson about present value it all makes sense.
Good theory always makes the best foundations.
7:56 "nobody knew what was in that package"... reminiscent of "nobody knows what's in the bonds!" in the Big Short
Great observation.
That's partially what he was alluding to
These lectures by Andrew Lo is very valuable. Although I am a CS graduate student, the simplicity of explanations and examples he gives makes me feel this a piece of cake. 😊
absolutely amazing i m a science graduate and an MBA aspirant , and i have to say the way of teaching he have is absolutely marvelous one of the best teacher i have ever came across
This lecture series is incredible. Doubled with the fact that the textbook is also available online as a PDF for free, as are the p-sets. Incredible.
could you provide a link for the textbook?
could you provide a link for the textbook?
@@nirushanraj5697 The course materials that we have are available on MIT OpenCourseWare at: ocw.mit.edu/15-401F08. Best wishes on your studies!
@@nirushanraj5697 just google the name of the textbook.
"I had something that I wanted to unload and I unloaded it at a price that two mutually consenting adults agreed to" he chuckled a little bit here.
Great lecture btw
Interesting to compare this course with The Yale Open courses Theory of Finance. The MIT course wins in terms of application and clear delivery. The Yale course is good but far more abstract. Watching the two however will give you a great understanding of Finance from two World class colleges.... for free. (better than wasting $80,000 ++ on an MBA )
Thank you, I didn't know that the Yale has courses of Finance on line.
Now I'm starting to learn about the finance because of Sir Andrew Lo. Thanks Sir and whoever records this treasure lecture videos. Thanks again. Peace.
As of 2021 nothing has changed, this lesson still stands strong
this is a perfect example of fallacy of authority, he justified all the bad loans that were handed out by saying what about the person who had subprime but paid all their debts on time, that is the exception tot he rule, the reason the housing market imploded was due to vast majority of subprime folks not being able to make monthly mortgage payments, millions of them, and then having to foreclose on their homes back to the banks
@fitnesspoint2006 he wasn't justifying it, he was saying that every situation has an upside and a downside depending on the perspective taken. Which is true of literally anything.
Definition of Asset at time T(i.e. sequence of all future cashflow) and how to calculate "net" present value is discussed in this class (Ch 2.1 - 2.2). It's important to consider cashflow in different times like we consider different currencies(£150 vs. ¥300). We get the exchange rate from "the market."
I love how he teaches Finance!
The best course I have ever seen!
You're one of the best professors on this planet! There's absolutely no doubt in that! Thank you sir!
It felt like I was in the class. No wonder why he's at MIT Sloan. Kudos to prof 👍🏻
I would do almost anything to go back in time and sit in this class in the middle of the 2008 financial crisis. Can you imagine some of these same students in 2024 looking back at this and just realizing the impact of being in this class in 2008? I pray other professors adopt this teaching style. 🙏
Thank you! This is a great discussion on Net Present Value and definition of an asset. This is worth watching.
Looking forward to learning another courses relate to Economic for either senior or master degree. It's very helpful for youth in developing countries who are eager to learn from such best university.
More importantly, it would be great if the such course videos update annually or bi-yearly since to make sure that it provide an up to date online learning.
Would be no point for spending so much money on these colleges if knowledge and information like this was so easily accessible.
Who is watching this as the Covid-19 unfolds!?
me
Craziness
Just got laid off
@@JammyTom I'm so sorry to hear that : (
@@RaylinRecords thank you 🙏 but at least we can learn finance 👍
At 1:07:30, when prof Lo starts speaking about interest rates/future values of today's $1, it seems that nobody questions why all rates r in formula:
$1 in Year 0 = $1 x (1 + r)^T in Year T
are the same. It was conveniently assumed we negotiated fixed interest rates for all accounting periods at present time so simple formula follows. In general all rates could be different:
$1 in Year 0 = $1 x (1 + r(0,T)) in Year T,
where r(0,T) would be some empirically ("from the market", but actually dictated by monetary policy regulator) determined (usually positive) number that follows from previously mentioned exchange rate $(0)/$(T) = 1 + r(0,T).
Without the subtle assumption we fix all the rates to r(0,1) the analysis wouldn't stand as correct. That is, mentioned (1 + z(0,T)) doesn't necessarily have to be same as (1+r(0,1))^T.
Andrew Lo isn't that smart after all
Can anyone please explain how we can treat future cash flows as certain values? Intuitively I’d think there is uncertainty in determining such values years in advance, making them difficult to calculate.
That poor guy lifting his hand lol
Im over here paying $3000 a semester to learn economics and this FREE video has taught me more in one hour than 3 semesters at a University : )
Not good value.
Great content from great professor, I amazed how he presented ideas, great MIT, just great.
17M/// watching this whole lecture, June 30th 2022.
Same, 20f going day by day,
Best professor in my life i heard so far .Thanks MIT for educating US this amazing subject.
at 4:15 - it's incredible to see an MIT finance lecture in 2008 provide live commentary on the Mortgage crisis - looking at most of the students there, they must have felt some insecurity about their employment post MBA - I wonder where are they now!
now i've figured out why i should've studied hard to got into the top college, eg. like MIT, Wharton. but my undergrad GPA is crap, sigh...
so true!
Great lectures! Just want to note a minor typo. It should be V0 = CF0 + ($0/$1)CF1 + ..., instead of $1/$0 ...
I also agree with you.
When you have a great lecture, students applaud after the class.
At 53:00, he talks about how adding different cash flows (at different times) is similar to adding different currencies. Now, in the eqn it's written $1/$0 + $2/$0 +.....
However I think since we are calculating present value, it should rather be $0/$1 + $0/$2 +......, so that $1, $2,... get cancelled and we're left with all values with unit $0, which is what we want (the present value of a cash flow $nCF.
Where am I going wrong?
I came down to the comments hoping to find someone struggling with the same part, and I guess I've found a friend.
You commented a year ago, so I was wondering if you ever did at the end find Andrew correcting this part.
PS I found many other guys stumbling upon the same issue in the comments, so we perhaps have proven ourselves correct?
This lecture is amazing. I am able to understand more easily. Thank MIT for that
really good professor. impressive, I want go mit
now i see why this course of lectures wasn't updated from 2008 for 13 years!♡
Funny how I am watching this now in 2023 after the collapse of SVB... Very interesting times ahead...
There is an error in "exchange rates" the professor defined for NPV calculation.
Everywhere in the lecture ($_t / $_0) should be inversed: ($_0 / $_t).
Otherwise, it is not consistent with currency exchange rates calculation and the logic: if future $ is more expensive than current $, then ($_t / $_0) > 1 and not ($_t / $_0) = 0.9, as in the lecture.
Pavel Shvechikov I think the slide is correct? On the right side say 0.9, you can understand it as 0.9 /1. While left side is $ t/ $0. That means discounting
I agree with you that ($_t / $_0) is inconsistent from of point of view of "units" and he should use ($_0 / $_t). Having said that, the value of the exchange rate is correct. If in the future CFt is more expensive it means that ($_0 / $_t) < 1.
Thank you so much for uploading this content.
I love this series sofar.
One correction I would like to add is - the government does not own the printing press.
A private company called "The Federal Reserve" does, of which the chair is appointed by the president. This chair is appointed amidst a limited list provided to the president to choose from.
It is important to understand this because a private company is beholden to shareholders, wherase a government entity is beholden to the people it represents. To understand finance this is crucial to grasp.
Fed controls money supply treasury controls printing press
Im really glad to watch this lecture its very useful make finance very easy for me thank you alot allah blesse u
Allah does not exist your parents lied to you
Teachers play an important role on student´s life; to see Mr. Lo with all of his wisdom and compromise is simply amazing!
P.D. What a tough year on finances
12 years later and we are back in the same economic state.
- Market determined exchange rates on PV/NPV
thank for mit for making this available for free！my dream is to get to sloan for my undergrad.
He says an asset is a sequence of cash flows. But I always considered my vacuum cleaner an asset and I don't see how that equates to a sequence of cash flows.
The vacuum clean could depreciate over time, a negative cash flow; every time you use, it served as a tool for cleaning, which contributed to the cash flow of appreciating your floor and the reputation of your personal image, some positive cash flow, there may be a time you decide to sell or throw it away, a negative flow or positive flow.
All assets or objects are a sequence of cash flows cumulated.
Lol
It reveals why some institutes like MIT are the best.... Because of the professors or Dr like these people....
you don't have to go abroad to fine currency conversion frictions. just wire money overseas, and you will find the wire conversion is less than the internet money conversion tables and charts. you pay twice once for sending the and the cost for doing business.
The definition of an asset as something that can be expressed as a sequence of cash flows is not to be found elsewhere but in this course. Kindly clarify
This China man is a genius. Probably the best tutor on the web.
Best professor ever! Hope his cancer security does well
An asset is a sequence of cash flows. Simple but...sophisticated to understand.
Starts at 19:33
59:16 yeah that's what's in the abstruse lingo of finance called a loan
what a great lecture sir thanks a lot 🙏 MIT its humble request please provide more courses of Finance
Time flies when watching this professor’s lectures. O.o
People benefiting from sub prime is irrelevant. The institutions that offered these services simply could not really afford it at a financial level.
Most of the institutions that offered such services required government backing. Why not just have the government offer mortgages.
I have had lectures and tests about NPV, but I was only taught the formula and that it was used for calculating project feasibility. However the range of its use was never discussed, probably because the lecturer had never used it himself.
Hi
Can someone please explain why $1/$0, $2/$0 is an exchange rate conversion? You are dividing by zero?
Fron the time t(2008) to the time t(2024), is the value of this lecture bullish or bearish? What about the little box would it have more value today than the one given in the lecture?
It is only an approximation, but it still seems to make a usable heuristic. Of course, by determining r(t) more accurately, you could get a more accurate predictions and a more convoluted model, but I doubt it's going to fall into weight since we've made other assumptions along the way.
To think a decade has passed since this... damn...
10:25 Seconds he says debters, isn't it lenders, they are the producer's. Right?
Why is the professor adding the values of cash flows at different time instants, when he himself clarified earlier, that the value of the asset is a value of a sequence of its present and future cash flows?
NPV (Net Present Value) is what he does later in the lecture Value of an Asset is tge definition of an assest he states for the class. You are confusing the two.
Thanks. Yes, he answers the same question from another student in a subsequent lecture.
Very useful content, even for teachers. We are actually giving lecture in English right now
Currently doing cfa level 1.. this is really helpful
Life is a Wonderful opportunity and journey and it must be Celebrated And Appreciated Happily Hopefully And Abundantly.
The textbook used in this course...
is.cuni.cz/studium/predmety/index.php?do=download&did=186638&kod=JEM034
Thank you
Quick note, algorithms cannot be patented, however their transformative applications can be via software patents.
Also, it wouldn't matter if Coke's formula was found out; they have such an established market share and there is psychological effects on taste people have when even looking at a product.
Maybe there isnt even a secret formula they think is big maybe its just psychological from beginning
Can cashflows be superadditive? eg: Reputation without any product generates zero cash flow, and vice versa, but taken together they have a positive cashflow.
They never really cover the homeowners that were evicted from their homes.
Why should r be constant? In the (1+r)^t expression
Great Lecture Series. I'm hoping to do it all.
I think value doesn't mean value anymore in stock market. Coz it's influenced so hard to know the real value.
What about Amazon stock? It gives 0 dividends, so 0 cash flows?
Gold must be restored as a monetary stabilizing backer of our paper fiat. This enforces accountability. Defaults are needed to make the math work. It doesnt mean the end of the world, it means short to intermediate pain and restrictiveness.
Wow this professor is amazing! I am really enjoying this course!! 😊😊
What does it mean by "no friction in currency conversion" under NPV assumptions?
That there's no cost to convert.
Thank you Professor🙏 So delightfully concise
My man literally made a dick joke in a finance class. Based.
time?
Excuse me, are the problem sets and solutions available? I can only find exams and exam answers on the MIT OCW page.
+KraussHelmut There are no problem sets available. From the Syllabus: "There are no required problem sets. However, we provide optional problem sets and solutions in the form of the MIT Sloan Finance Problems and Solutions Collection, and the majority of the questions on the midterm and final examinations will be taken verbatim from this document."
+KraussHelmut The course actually does have problems and solutions collection, but the professor doesn't post it on the MIT OCW page. However, you can easily find it by googling "the MIT Sloan Finance Problems and Solutions Collection."
Here are the links to download the collection.
Part 1: alo.mit.edu/wp-content/uploads/2015/06/PS_Part1.pdf
Part 2: alo.mit.edu/wp-content/uploads/2015/06/PS_Part2.pdf
MIT. Do you have a lecture on project funding?
thank you
bless you
what does he mean by "I have a security that pays..." what is a security?
It's not only that a dollar today is more useful than a dollar later, but that the dollar is continuously being devalued.
Financial valuation = time travel
This makes me feel like I want to transport to MIT and join this class. Amazing professor! ❤️
Struggling with DCF. Its a great lecture
Prof. Lo is amazing!