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Lecture 3: Financial Markets and Institutions, Financial Statements, Cash…

- - - - Direct transfer
      - Investment Banks
      - Financial Intermediaries
- - - - Provides a snapshot of a firm's financial position at one point in time.
        
        Total assets = Current Assets + Long-Term (fixed assets)
        
        Total Liabilities and Equity = Current Liabilities + Long-Term Debt + Stockholders' Equity
    - - Summarises a firm's revenues and expenses over a given period of time.
- - - - r = required return on a debt security (nominal interest rate)
      - r* = real risk free rate of interest
      - IP = Inflation premium, average expected inflation over life of debt security
      - DRP = Default Risk Premium, compensation for possible default
      - LP = Liquidity Premium, compensation for possible difficulty selling debt security quickly at fair market value
      - MRP = Maturity Risk Premium, compensation for possible loss in value due to increase in interest rates over maturity of debt security.
  - - - Rrf = r* + IPt + MRPt
    - - Rrf = r* + IPt + MRPt
      - MRPt = 0.1% (t-1)