BFF1001 Lecture Notes - Lecture 3: Deposit Account, Cash Flow, Sinking Fund
Week 3: Wealth, Time and Money (Intro to Financial Math)
Financial Math is about Valuation:
Value is defined as the worth of an asset, the total of what asset can earn over
the period held. The worth of an asset typically comes from net income in the
future and terminal value. How about liabilities?
The first step in establishing value is to estimate the components of cash flow
streams, (money streams) that arise from financial products and real assets.
Examples of financial products: loans, shares and bonds
Examples of Real Assets: real estate, and equipment (that represent investable,
tangible products)
The value established could be a present value or a future value. Value is
termed by a number of names, including fundamental value, true value, intrinsic
value and economic value.
Ultimately, value is important because it is used to make buying and selling
decisions of financial products and real assets.
Price = of a financial product or real asset is what it trades at an in a market as a
function of its supply and demand
The value of an asset, i.e what it is worth, is one factor that influences the
supply and demand of the asset and thus its price.
Document Summary
Week 3: wealth, time and money (intro to financial math) Value is defined as the worth of an asset, the total of what asset can earn over the period held. The worth of an asset typically comes from net income in the future and terminal value. The first step in establishing value is to estimate the components of cash flow streams, (money streams) that arise from financial products and real assets. Examples of financial products: loans, shares and bonds. Examples of real assets: real estate, and equipment (that represent investable, tangible products) The value established could be a present value or a future value. Value is termed by a number of names, including fundamental value, true value, intrinsic value and economic value. Ultimately, value is important because it is used to make buying and selling decisions of financial products and real assets.
