Ses 2: Present Value Relations I
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- Опубликовано: 1 окт 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
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
Delivered in 2008, still generating knowledge flow. This lecture series is a pretty valuable asset.
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.
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? :)
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 👍
Best part of lockdown -- discovering gems like this on RUclips.
@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
April 2024 and still these lectures are f*cking awesome! Thanks for sharing!
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
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?
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 🎉
That poor guy lifting his hand lol
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
lectures from MIT are available freely online. What a time to be alive
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
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.
ruclips.net/video/vTs2IQ8OefQ/видео.html
ruclips.net/video/WQui_3Hpmmc/видео.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?
17M/// watching this whole lecture, June 30th 2022.
Same, 20f going day by day,
*How invaluable for this to be recorded at that time.* This is beautiful
Literally right!
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.
At 12:00: "Due to money printing, the American tax payer is on the hook for tens of billions of dollars". Oh 2013... What an innocent time.
"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
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.
Funny how I am watching this now in 2023 after the collapse of SVB... Very interesting times ahead...
It felt like I was in the class. No wonder why he's at MIT Sloan. Kudos to prof 👍🏻
Who else watching this in 2022
2024 my friend. 10th time watching this episode again although I will finally make it thru. Keep ending it half way thru, than forgetting where I left off lol.
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.
My man literally made a dick joke in a finance class. Based.
time?
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
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. 😊
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!
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.
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.
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!
The textbook used in this course...
is.cuni.cz/studium/predmety/index.php?do=download&did=186638&kod=JEM034
Thank you
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
Thank you so much for uploading this content.
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.
Great content from great professor, I amazed how he presented ideas, great MIT, just great.
really good professor. impressive, I want go mit
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
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.
Starts at 19:33
Financial valuation = time travel
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?
12 years later and we are back in the same economic state.
What the hell! This is amazing
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
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.
The professor is a billionaire
Love how open and transparent he is discussing the circumstances of the times. He didn't shy away from any question
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!
19:30
10:02 birth of the money printer meme
They never really cover the homeowners that were evicted from their homes.
thank for mit for making this available for free！my dream is to get to sloan for my undergrad.
This lecture is amazing. I am able to understand more easily. Thank MIT for that
When you have a great lecture, students applaud after the class.
Great video series I would like to make a comment about the subprime mortgage is and to let everyone know that don’t know any better is back then my mother bought a house she had a credit score of damn near an 800 and because I was in California at the time and one of my other brothers was supposedly helping my mom I didn’t Pay much attention to it and obviously he didn’t know any better she ended up getting a balloon interest rate basically the interest just kept occurring and a current and a curing every year her mortgage payment went from $600 a month two $2400 a month in three years I don’t know how anyone kept their house I really don’t we tried everything that I could And I was unsuccessful at getting her to keep that house that whole situation was dead wrong dead wrong and I feel that it’s happening again and we’re in year 2021 now and I think the auto industry is going along with it also but I guess we’ll just have to wait and see
There is an error in "exchange rates" the professor defined for NPV calculation.
Everywhere in the lecture ($_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.
Very useful and valuable lectures, but I can't stand it when he pronounces the "h" in "which" every single time
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?
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
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.
what a great lecture sir thanks a lot 🙏 MIT its humble request please provide more courses of Finance
Hi
Can someone please explain why $1/$0, $2/$0 is an exchange rate conversion? You are dividing by zero?
I think value doesn't mean value anymore in stock market. Coz it's influenced so hard to know the real value.
He's not talking about Freddy Mac and Frann Mae, he's talking about the USA
You're one of the best professors on this planet! There's absolutely no doubt in that! Thank you sir!
Any body here go to MIT
Best professor ever! Hope his cancer security does well
GAAP do not allow companies to assign a value to brands they develop in house.
10:25 Seconds he says debters, isn't it lenders, they are the producer's. Right?
Would anyone bid $45 for an ipod that they do't actually want? I think not.
Very useful content, even for teachers. We are actually giving lecture in English right now
It is not a Chinese Curse. It was a curse from Genghis kahn.
- Market determined exchange rates on PV/NPV
Life is a Wonderful opportunity and journey and it must be Celebrated And Appreciated Happily Hopefully And Abundantly.
1:11:05 wrong. you get it from the FED.
Can someone tell me the answer for the problem asked?
The video starts from 19:20
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!
does anybody have any ideas as to what the answer is to the question "how much should you ask for" at 1:03:32 ?
Scrolling through comments looking for the same thing.
I think it's $125,000. 125,000 in two years would be worth 100,000 to me today, which was the original NPV. Not sure though.
@@phantasmagoria1297 Hi there. I think we are supposed to be looking at it from the perspective of us being the financial manager and another person(or entity) the buyer. Ive done some thinking.. In 2 years time, and given the interest rates which we are assuming will stay at the rates provided, if the Project in todays value is worth $100,000 (Which is the NPV that was calculated) more then the initial investment of 10mm, that means that the project in 2 years time would require an investment $10,100 000. So in 2 years if your selling it, wouldn't you want to sell it for that price?
@@returnofthemac9939 I was hoping someone was answering this question! thanks
@@luisasregadas np!
Best professor in my life i heard so far .Thanks MIT for educating US this amazing subject.
To think a decade has passed since this... damn...
amazing teacher!
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.
59:16 yeah that's what's in the abstruse lingo of finance called a loan
This is MIT? Is it just me, or is he moving slowly through concepts? Do you think this is purposefully done?
@Leon Polyzos: It's an intro course for people seeking their graduate degree at MIT. I would have thought scholars like these could handle a little more throughput and might have left the look-at-how-smart-I-am-to-ask-obscure-questions-that-waste-everybody's-time crap behind them in their under-grad degree days. Granted, the teacher is of higher calibre than some of my local community college teachers. But it feels squandered on his need to babysit his students. .
Samwhell it’s an MBA class and not one for the Master’s in Finance. MBA students have different starting points: some have more quantitative training and economic knowledge, but not all of do.
@@kw6143 My misunderstanding. Thank you for clearing that up.
It's not only that a dollar today is more useful than a dollar later, but that the dollar is continuously being devalued.
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.
19:18 starts the slide presentation
20:45
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. 🙏
Can cashflows be superadditive? eg: Reputation without any product generates zero cash flow, and vice versa, but taken together they have a positive cashflow.
This is basically a DCF analysis
What about Amazon stock? It gives 0 dividends, so 0 cash flows?
my man predicted the inflation back in 2013!
CRAZYY DUDE
I find it interesting that I would value the smaller package over the larger one.. I would think small = jewelry $$$$ ... While larger could be anything, probably a book $$