# The Basic Ideas, Scope, and Tools of Finance

Jun 21st, 2015
Studypool Tutor
Price: \$10 USD

Tutor description

Finance is the economics of allocating resources across time.The market interest rate is the rate of exchange between present and future resources. Any transaction that a participant might make by borrowing or lending at the market interest rate of interest will produce a result that lies on the Financial Exchange Line.

Word Count: 8000
Showing Page: 1/41
The Basic Ideas, Scope, and Tools of FinanceFinance is the economics of allocating resources across time.The market interest rate is the rate of exchange between present and future resources. Any transaction that a participant might make by borrowing or lending at the market interest rate of interest will produce a result that lies on the Financial Exchange Line. The expression that moves us up or down the exchange line is:CF(1) = CF(0) (1 + I)Present ValuePresent Value is defined as the amount of money you must invest or lend at the present time so as to end up with a paticular amount of money in the future. Present value is also an accurate representation of what the market does when it sets a price on a financial asset.The present value of all present and future resources (cash flows) is known as present wealth. It is a useful benchmark or standard to judge whether an individual will be better or worse off when undertaking a proposed financial decision.One cannot change present wealth merely bey transacting at the market rate. Borrowing and lending at this rates simply moves you up and down the exchange line--so it impacts only time allocation. (Only investing in real assets can increase present wealth. This produuces a parallel shift in the financial exchange line.) The amount of parallel shift in the exchange line can be calculated using the present value equation.PV = CF(0) + CF(1) (1 + i)Net Present ValuePV (inflow -

## Review from student

Studypool Student
" <3 it, thanks for saving me time. "

1830 tutors are online

### Other Documents

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors