Summary Finance SUPER DETAILED LECTURE NOTES WEEK1-5
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Course
Finance (E_IBA2_FIN)
Institution
Vrije Universiteit Amsterdam (VU)
This summary covers super detailed finance lecture notes that I currently did by myself during my second year of IBA (took ages to do!). It covers all the topics from week 1 to week 5 and everything the lecturer talked about in class in a super detailed explanation. It includes step by step calcu...
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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