1.
Lecture 8
Macroeconomics

2.
Opening
Prayer

3.
Quiz Master

4.
Chapter 10
Stock Market and Personal
Finance

5.
What is a
Market?
Where buyers
and sellers can
discover value

6.
$100
$0
$50
$75
$25
Value
Range
Price
Seller
Buyer

7.
$100
$0
$50
$75
$25
No Overlapping
Value Range
Seller
Buyer
No Price
Discovery

8.
Private information
becomes public
information when
people act.

9.
money put at risk over time
money is time
savers and borrowers
(1+r)n
insurance
limited liability corporations
double entry accounting
Financial Capital

10.
Dow Jones Industrial Average
DJIA
30 leading companies

11.
S&P 500
Weighted by size
Better indicator
NASDAQ
3,000+ Stocks
smaller and
high tech
National Association of Securities
Dealers Automated Quotations

12.
Indexes
DJIA
S&P 500
NASDAQ

13.
Investment
GDP:
purchases of new capital
Stocks and Bonds

14.
Firm
An organization that
organizes capitals

15.
Types of Firms
Proprietorships
Partnerships
Corporations

16.
Issues
Complexity
Liability
Taxes
Raising Money
Control

17.
Proprietorship
one owner
easy to create
one tax
unlimited liability
hard to raise money
ends with death

18.
Partnership
two or more owners
easy to create
combine talents
all are liable
disagreements
ends with death

19.
Corporation
one to many owners
limited liability
raise financial capital
does not die with shareholders
harder to create
more regulation
double taxation

20.
Number Revenues
Proprietorships 70% 4%
Partnerships 10% 16%
Corporations 20% 80%

21.
Dividends
portion of profits paid to
shareholders

22.
Raising Money
Borrow
Retained Earnings
Sell Ownership Shares

23.
Financial Statements
Income Statement
Balance Sheet

24.
Income Statement
Revenue
- Expenses
= Net Income
What happened between two dates?

25.
Balance Sheet
What I own
What is the status on a speci
fi
c date?
What I owe
What I am worth
=
Assets
Liabilities
Net Worth
Must balance

26.
Valuation
Stock Price x Number of Shares
$50 a share
1,000,000 shares
$50,000,000 value

27.
Valuation
Share Price: $145
Share Outstanding: 16 billion
Value ?
$2.32 trillion

28.
wolframalpha.com

29.
Accounting Pro
fi
t
Explicit Costs
Explicit + Implicit Costs
Economic Pro
fi
t

30.
Finance
Time
Risk

31.
Finance
Time - t or n
Risk - r or i

32.
Foundation Finance
Formula
(1 + r )
n
r = risk rate
n = time periods

33.
number of periods
Value r = 5%
r = 10%
r = 15%
Value = (1 + r)n r = rate
n = number of periods

34.
number of periods
Value
r = 15%
Value = (1 + r)n r = rate
n = number of periods
Future
Value
Present
Value

35.
FutureValue?
Future Value = Amount Today x Factor
Factor is the Growth Formula
(1 + r )
n
r = rate
n = time periods

36.
FutureValue?
(1 + r )
n
r = 10% or 0.10
n = 5 years
(1 + 0.10)5
(1.10)5
1.61

37.
FutureValue?
Future Value = Amount Today x Factor
$161 = $100 x 1.61
Future Value is compounding
Future Value is multiplying

38.
PresentValue?
Present Value = Future Amount ÷ Factor
Present Value = $500 ÷ 1.61
$310.56 = $500 ÷ 1.61
Present Value is discounting
Present Value is dividing

39.
Finance
Unknown - Present Value or Future Value?
Must know rate and number of periods
Compute Factor with formula
(1+r)n
If FV multiply
If PV divide

40.
Present Future
x Factor ?
÷ Factor ?
Factor Formula = (1 + r )
n