Class notes

Finance Week 1 till 3 IBA yr2

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Course
Finance

Institution
Vrije Universiteit Amsterdam (VU)

This is a super detailed summary of the Finance lectures (IBA YR 2) week 1-3. The summary covers everything the lecturer covered from week 1 till 3, nothing is taken from exterior sources, very detailed analysis of the complex calculations. Literally everything from the lectures are explained in a ...

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Uploaded on March 2, 2024
Number of pages 71
Written in 2023/2024
Type Class notes
Professor(s) Mark
Contains All classes

week 1
week 2
week 3
hirshleifer model
capital budgeting
valuation of bonds and shares

Institution
Vrije Universiteit Amsterdam (VU)
Education
Business Administration: Finance
Course
Finance

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Finance week 1/week 2/week 3 detailed summary

Week 1
Date: 31-10-2023

Hirshleifer model part 1
This lecture is about the Hirshleifer model in a financial/without real market, with financial but
without realmarket.

Hirshleifer model without financial and without real market

At t=0 you receive CF0 and at t=1 CF1
(income at t=0 and t=1 respectively)
• What do you do?
– At t=0 you can consume CF0 completely, partly or nothing.
– If there is money left at t=0, you put this amount under your
pillow and you consume it including the CF1 at t=1.
Hirshleifer model without financial and without real market

,Hirshleifer model with financial but without real market

We assume that each participant can borrow or lend unlimitedly against the
risk-free market interest rate rf

Optimal consumption combination

indifference curve: contains the collection of consumption combinations to which the individual
assigns an equal utility value.

,The slope of this indifference curve is called the marginal rate of substitution between the
present and future consumption.

To summarize, with financial markets its possible to reallocate cash flows in time>> consumption
possibility line. The optimal consumption combination (C0,C1) can be determined as the point
where the indifference curve is tangent to the consumption possibilities line.

Hirshleifer model part 2
Date: 1-11-2023

This is about the Hirshleifer model with financial market and real market

Real investment possibilities curve

, the answer to the question here is that we invest less.

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