ECON 251: Financial Theory

Lecture 8 - How a Long-Lived Institution Figures an Annual Budget. Yield << previous session | next session >>

Overview:

In the 1990s, Yale discovered that it was faced with a deferred maintenance problem: the university hadn't properly planned for important renovations in many buildings. A large, one-time expenditure would be needed. How should Yale have covered these expenses? This lecture begins by applying the lessons learned so far to show why Yale's initial forecast budget cuts were overly pessimistic. In the second half of the class, we turn to the problem of measuring investment performance, and examine the strengths and weaknesses of various measures of yield, including yield-to-maturity and current yield.

Reading assignment:

Ross, Corporate Finance, chapters 4 and 7

Sharpe, Investments, pp. 108-119

Bodie, Finance, pp. 101-142

Taggart, Quantitative Analysis for Investment Management, pp. 3-16

Class lecture:

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