VL 02 · Mi, 21. Okt. · 11 Folien
The Value of Time
Treats the financial system as a time machine under perfect, risk-free markets. Returns split into a cash and a capital-gain component; compounding gives future values, discounting at the opportunity cost of capital gives present values (DCF). NPV and IRR are introduced as investment criteria. The law of one price follows from the absence of arbitrage and implies value additivity, also used for foreign-currency cash flows. Closed-form values for constant and growing annuities and perpetuities are derived via replication and the LOOP.
Compounding, discounting and present valueNet present value and internal rate of returnLaw of one price, arbitrage and value additivityAnnuities and perpetuities (constant and growing)