Lecture 1
real vs financial assets
seok us bad
issue sucks
dividend
investment expenses
issue bonds
net revenue
new investment
debes
primary us secondary market
risk dimension
Time us
Performance of
Measuring
PetitDtt
Pt
Rex
I
Yeti
grouchgrosssimple return
real
Gg It real
Rtt2
I rte
Xtra
Clog return
I Vets
log lit reti
Gesmeerie
sucks
log Itta
It
r
Average
per period
Itf
Compounding
lm
mo
Log
it
m
Em
it Reti
e
1
oftimes interest paid
un
C
t
interest
In seartausus return
reurn equals the continuously compounded return chatyield r
ex
where X
It r
X
In
Itr
conenuously compounded return
Lecture 2
08
29
Intertemporal choice 1 Baseconsumption set theagent an alford
two periods
t o
2 goods
Co Ci
Prices i Po
income
e
l
P P 1
Assume
p
Ibudget constraintbutallowing borrowingand
Mo Mi
swing
Creditmarket available can borrow or
it
aCco
Ucco c
assume
i
n
o
ftp.bscsmtc
un
objective I maximize U
Budget Constraints
v
PiCi
ME
se
At
Mi
fi
L
E
co c
d
U'cc
YEE
If
Carewe
it8
fir
est
t
o
it
C't r
Mo Co
Hr
mo
co
Mo co
sang
borrowing
titty
U ca
mo t
ith
1
impatient
Mo Poco
Mo
Uca
E
more
budget conserant
M t
Cot
t
89
o
C
U co
save at interest rate r
rate
siglevariablecalculus
Mtr
its Ucci
XceI
Mo
Mir
uicc.sn
Ai o
fi mo Mirko
I
t.tt
U'ceil
g It
i
Ucci
Itf
fi
mo
Mirko
U co
D
Hi
est
U'CCF
É
8
1
u'd's
o
44
If
o
Is fit
Uic
A
of current rate ofconsumptionand
faure
function
Concave
flax
C 2
U CCF
Uca
y
Lfa
CI 2
ff.IT
toy
sc
A
rate of consumption
2 E Co 1
2cotci dla
Lucca
2 UCK
1
Hr
It 8
i
8
8
U Cst
U CH
Ir
t
Assume U so
r
U Ct
Ct
0
CI Ci
Let C
Budgetanserine C
be U
i
CF
Case
Ifirgottir
U CCF
mas
Case I
U Co
u
serially decreasing
Casey
8
U Cst
Cot
Mr
Mo
O
Mot Mtr
re
U'Cet
C
more meantime is
a
Etr
8
U'Ccf
cot
save
t
Mtr
C Y
suppose
y
l y
o
841
Ucc
In
8
C
V
1
flueenationaversion
relates
My
or
U'cc
T
120
1storder conditions
plug in
r
et
ki
suppose
I
r
If
Cox
O
JC
U Cc
CY
N
C
ftp.ee
o1
cars't
r 0.05
1 of
T
E
C
11.05
21
C
1.05
11.2
j
CI
smoker
Cousens
say
small Ci Col
Investment
RisbyAssees
in
individual has
i initialwatch Wo
H
utility function U where U
0
Two possible investments
1 Bond pays 1 For sure forevery Invested
Ii Riskysuck pay r for 1 invested
where
Wereumy
Ft O
r
r
r
Assume
Decisionvariable i
r
P
wp
up I P
Prt Ci p r so
co
2 E Lo I
LEI
W
Wo
I
2C It rt
w
W
Wo la d I
2 it r I
up
E WT
PUCWT
T CI
PSU Wi
p P
I
P