Topic 2 Flashcards
what is a claim on a stream of future cash flows?
a financial instrument held by an investor/ asset
what is the core idea/assumption about cash?
a euro in the future is worth less than a euro in the present
why do we value the euro in the future at less than a euro in the present?
‘impatience’ and/or there are opportunities available to you having the euro today which are valuable
which by assumption, you don’t have with the euro in the future
what happens if we receive a euro amount in the future?
we discount it by a certain percentage to value it today
the further in the future the amount is received, what is the case?
the more we discount: the more we reduce its present value
why is it a core idea/assumption that a euro in the future is worth less than a euro in the present?
impatience and/or there are opportunities available to you having the euro today which are valuable which by assumption, you don’t have with the euro in the future
if we receive a euro amount in the future what do we do?
we discount it by a certain percentage to value it today
what does a higher discount rate mean?
a lower present value of future cash flows
