Investment Valuation: Present and Future Value Concepts

This lecture covers the fundamental concepts of present and future value in investment valuation. It begins by defining future value as the amount an investment will grow to over time at a specified interest rate. The instructor explains how to calculate future value using the formula S₁ = S₀(1+i)ⁿ, where S₀ is the initial investment, i is the interest rate, and n is the number of years. The lecture also addresses the inverse relationship, calculating present value, which determines how much needs to be invested today to achieve a desired future amount. The instructor illustrates these concepts with practical examples, including investments in startups and the importance of comparing rates of return. The discussion extends to the internal rate of return (IRR) and the significance of risk in investment decisions. The lecture concludes with an overview of discounted cash flow (DCF) analysis, emphasizing its application in valuing assets and estimating capital stock, which is crucial for understanding investment sustainability and economic growth.