AFM273 Lecture Notes - Lecture 2: Arbitrage, Net Present Value, Savings Account

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM273
• Professor: Xuyang Ma

Document Summary

Corporate financial decisions are assessed in terms of their benefits and costs. Main goal is to maximise the value of the firm. 400 ounces of silver for 10 ounces of gold today. You take it if the value of gold is higher than sliver. Both gold and silver are traded at a competitive market. The jewellery manufacturer thinks price of silver is too low. Sell gold 10 ounces of gold for 17000. So you are left with 400 ounces of silver and . Don t need car : ,000 - ,000 = . Learn how to convert currency using the exchange rate. Risk free interest rate : interest rate at which money can be borrowed or lent without any risk. Use risk free interest rate to calculate the pv and fv of the investment opportunity, to help you compare. The present value/fv of benefit should be bigger than the pv/fv of the cost.