FIL 240 1st Edition Lecture 2Outline of Last Lecture I. What is Finance?A. Definition of economicsB. Definition of dynamic efficiencyII. Financial IntermediationA. Definition of opportunity cost Outline of Current Lecture I. Areas of FinanceA. Definition of REITII. Interest RatesA. Equation for risk-free rate and interest rateIII. MarketsA. Definition of money marketB. Definition of capital marketC. Definition of capital paperIV. LiquidityCurrent LectureI. 4 large areas of finance and a subseto Investments – Stockbroker, investment banker, hedge fund managero Corporate Finance – Analyze potential projects & how to investo Institutional Finance – Banking, etc.o Financial Planning – Helping people & groups prepare for the futureo Real Estate Finance (specialized subset) – Analyze properties and see if they’re worth buyingA. REIT – real estate investment trust: group of shareholders that buys malls,strip malls, etc. and gives 95% of money back to shareholders. Recently, they’ve started buying timber, prisons, and mines. II. Interest Rates – rental rate of money: % of what you owe charged as a rental fee. Underneath all rates are a core interest rate (represents just the opportunity cost of money) – The Real Interest Rate.These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.A. Kreal – driven by the supply of & demand for moneyKf = Kreal + ᴨe (expectation rate – all that matters)Kf – risk-free rate (short-term Treasury bill)K = Kf + risk premiumIII. MarketsA. Money Market – money for short term (less than 1 year)B. Capital Market – money for long term (over 1 year)C. Commercial Paper – debt instrument in money market – 90 days issued by corps.IV. Liquidity – efficiency/ease with which an asset can be converted into cash (another
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