Sentence stringlengths 173 4.61k | video_title stringlengths 19 106 |
|---|---|
It's 100 times 1.05, so that's $105. And then if you've got another 5%, so the government is giving you 5% per year, it would be 105 times 1.05. And what is that? So I have 105 times 1.05 is equal to $110.25. $110.25. So that is a value in two years. So immediately, without even doing any present value, we see that you... | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
So I have 105 times 1.05 is equal to $110.25. $110.25. So that is a value in two years. So immediately, without even doing any present value, we see that you'll actually be better off in two years if you were to take the money now and just lend it to the government, because the government, risk-free, will give you $110... | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
So immediately, without even doing any present value, we see that you'll actually be better off in two years if you were to take the money now and just lend it to the government, because the government, risk-free, will give you $110.25 in two years, while I'm only willing to give you $110. So that's all fair and good, ... | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
So $110 in two years, what is its one year value? Well, you take $110 and you divide it by 1.05. You're just doing the reverse. And then you get some number here. Well, that number you get is 110 divided by 1.05. And then to get its present value, its value today, you divide that by 1.05 again. So you get 110 divided. | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
And then you get some number here. Well, that number you get is 110 divided by 1.05. And then to get its present value, its value today, you divide that by 1.05 again. So you get 110 divided. If I were to divide by 1.05 again, what do I get? I divided by 1.05, and then I divide by 1.05 again. I'm dividing by 1.05 squar... | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
So you get 110 divided. If I were to divide by 1.05 again, what do I get? I divided by 1.05, and then I divide by 1.05 again. I'm dividing by 1.05 squared. And what does that equal? And I'm writing this on purpose, because I want to get you used to this notation, because this is what all of our present values in our di... | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
I'm dividing by 1.05 squared. And what does that equal? And I'm writing this on purpose, because I want to get you used to this notation, because this is what all of our present values in our discounted cash flow, this type of dividing by 1 plus the discount rate to the power of however many years out, this is what all... | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
And that's all we're doing, though. We're just dividing by 1.05 twice, because we're two years out. So let's do that. We could just, well, let's just do that, 110 divided by 1.05 squared is equal to $99.77. So it equals, let me do that in a different color, it equals 99.77. So once again, we have verified by taking the... | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
We could just, well, let's just do that, 110 divided by 1.05 squared is equal to $99.77. So it equals, let me do that in a different color, it equals 99.77. So once again, we have verified by taking the present value of $110 in two years to today, that its present value is, if we assume a 5% discount rate, and this dis... | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
You can tweak that discount rate and make a few assumptions in discount rate and pretty much assume anything. But right now, for simplification, we're assuming a risk-free discount rate. But when you present value it based on that, you get $99.77 and you say, wow, this really isn't as good as this. I would rather have ... | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
I would rather have $100 today than $99.77 today. Now this is interesting. Choice number three. How do we look at this? Well, what we do is we present value each of the payments. So the present value of $20 today, well, that's just $20. What's the present value of $50 in one year? | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
How do we look at this? Well, what we do is we present value each of the payments. So the present value of $20 today, well, that's just $20. What's the present value of $50 in one year? Well, the present value of that is going to be, so plus $50 divided by 1.05. That's the present value of $50 because it's one year out... | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
What's the present value of $50 in one year? Well, the present value of that is going to be, so plus $50 divided by 1.05. That's the present value of $50 because it's one year out. And then I want the present value of the $35. So that's plus $35 divided by what? It's two years out, right? So you have to discount it twi... | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
And then I want the present value of the $35. So that's plus $35 divided by what? It's two years out, right? So you have to discount it twice. Divided by 1.05 squared. Just like we did here. So let's figure out what that present value is. | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
So you have to discount it twice. Divided by 1.05 squared. Just like we did here. So let's figure out what that present value is. Notice I'm just adding up the present values of each of those payments. Get out my virtual TI-85 and see. So the present value of the $20 payment is $20. | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
So let's figure out what that present value is. Notice I'm just adding up the present values of each of those payments. Get out my virtual TI-85 and see. So the present value of the $20 payment is $20. Plus the present value of the $50 payment, well, that's just 50 divided by 1.05. Plus the present value of our $35 pay... | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
So the present value of the $20 payment is $20. Plus the present value of the $50 payment, well, that's just 50 divided by 1.05. Plus the present value of our $35 payment. 35 divided by, and it's two years out, so we discounted by our discount rate twice. So it's divided by 1.05 squared. And then that is equal to $99.3... | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
35 divided by, and it's two years out, so we discounted by our discount rate twice. So it's divided by 1.05 squared. And then that is equal to $99.30. We'll round it. $99.37. So now we can make a very good comparison between the three options. This might have been confusing before. | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
We'll round it. $99.37. So now we can make a very good comparison between the three options. This might have been confusing before. You know, you have this guy coming up to you, and this guy is usually in the form of some type of retirement plan or insurance company where they say, hey, you pay me this for years A, B, ... | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
This might have been confusing before. You know, you have this guy coming up to you, and this guy is usually in the form of some type of retirement plan or insurance company where they say, hey, you pay me this for years A, B, and C, and I'll pay you that in years B, C, and D. And you're like, boy, how do I compare if ... | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
You present value all of the payments, and you say, well, what is that worth to me today? And here we did that, and we said, well, actually, choice number one is the best deal. And it just depended on how the mathematics work out. If I lowered the discount rate, if this discount rate is lower, it might have changed the... | Present Value 2 Interest and debt Finance & Capital Markets Khan Academy.mp3 |
We're going to do something very similar in this video, but instead of thinking about, or instead of starting with output, we're gonna start with input. So right over here, we have a table that shows us the worker hours per item per country. So instead of this being an output table where we say in a given country, how ... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
In country A, it is two hours. That labor, that two hours of labor, this is the input. So we're not counting the number of cars per day here. We're saying how many hours per car we need to put in to produce it. Similarly, we have the input required in country A to produce a belt, one hour of worker time. In country B, ... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
We're saying how many hours per car we need to put in to produce it. Similarly, we have the input required in country A to produce a belt, one hour of worker time. In country B, four hours of worker time produces a toy car, and in country B, three hours of worker time produce a belt. So what we're gonna do next is conv... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
So what we're gonna do next is convert this into the world that you might be more familiar with, of thinking in an output world. And to do that, we'll just assume that there are eight working hours, eight working hours per day in either country. And so from this, can we construct an output table? Let me put this right ... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
Let me put this right over here. Output, output table, where once again, we're gonna think about the output in country A, we're gonna think about the output in country B, and this is going to be in how many units of that product can a worker produce per day in each of those countries. So once again, we're gonna have to... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
And let me just draw some lines so it's clear that we're dealing with a table here. So there we go. Then one more column. And so see if you can fill these in. So how many toy cars per worker per day can we produce in country A? Then think about it for belts, then think about both of them for country B. Pause the video ... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
And so see if you can fill these in. So how many toy cars per worker per day can we produce in country A? Then think about it for belts, then think about both of them for country B. Pause the video and try to figure that out. All right, now let's think about how many toy cars per worker per day. Let me make it very cle... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
Pause the video and try to figure that out. All right, now let's think about how many toy cars per worker per day. Let me make it very clear. We're thinking per worker per day here. Because if we can fill out this output table from this, I guess you could call this an input table, then we can think about opportunity co... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
We're thinking per worker per day here. Because if we can fill out this output table from this, I guess you could call this an input table, then we can think about opportunity costs in the traditional way, and then we could think about in which country do we have a comparative advantage. So let's see, toy cars in count... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
If it takes two hours to produce one toy car in country A, and if you're working, if the average, or if the worker is working eight hours per day, well then a worker can produce four cars. Four cars times two hours is eight hours. So an average worker per day in country A can produce four toy cars. Let me write that in... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
Let me write that in that red color. Four toy cars. I just took eight hours and I divided by the number of hours it takes to produce a toy car. Similarly for belts, if I have eight hours and it takes an hour for a worker to make one belt, then per worker per day, eight divided by one, I could produce eight belts. And w... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
Similarly for belts, if I have eight hours and it takes an hour for a worker to make one belt, then per worker per day, eight divided by one, I could produce eight belts. And we could do the same thing for country B, and I encourage you to pause the video if you haven't done so already and try to fill this column out. ... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
If it takes three hours to produce a belt, well then you take your eight hours, divide it by three hours per belt, and you're gonna be able to make 8 3rd belts per worker per day. This is the same thing as two and 2 3rd belts per worker per day. So as you can see, we can easily translate between the input world and the... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
So let's do that. Let me write opportunity, opportunity, opportunity cost, and I'll make another table here. So country A, country B, and then I have the toy cars, toy cars, and then I have the belts. The belt's in that orange color. I have the belts, and then let me set up my table. We're almost there. At any point in... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
The belt's in that orange color. I have the belts, and then let me set up my table. We're almost there. At any point in time, pause this video and see if you can figure out the opportunity cost given the information that we already have. We took this table to figure out this table, and now we could take, and now we cou... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
At any point in time, pause this video and see if you can figure out the opportunity cost given the information that we already have. We took this table to figure out this table, and now we could take, and now we could take, and now we could take this table to figure out this one. Well let's do this together now. So to... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
So toy cars. What's the opportunity cost in country A? Well one way to think about it is, in country A, the same energy to produce four, four toy cars, I'll call it four C, C for cars, we could also use that to produce eight belts. So if I were to divide both sides by four, the energy to create one car is equal to the ... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
So if I were to divide both sides by four, the energy to create one car is equal to the energy to create two belts. So my opportunity cost of a car is two belts, and if I start with this original equation and just divide both sides by eight, I would solve for the energy for a belt, and so that would be four over eight ... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
And like always, this and this are reciprocals of each other. Now we could do the same exercise for country B, and once again, I keep emphasizing, try to pause the video. If you do this on your own as opposed to just watching me do it, it'll stick a lot better in your brain. All right, in country B, the same energy to ... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
All right, in country B, the same energy to make two cars, toy cars, with that same energy, I could make 8 3rds, 8 3rds belts, 8 3rds belts right over here. So the energy to make a car, divide both sides by two, is equal to, instead of one car, I can make 4 3rds of a belt. And so I'll just write this as 1 1⁄3 of a belt... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
And then if I start right over here and I multiply both sides by 3⁸, actually, let me do that over here. So I have 3⁸ times 2c is equal to 8 3rds B times 3⁸. These cancel out. And over here, I'm gonna have 6⁸c. 6⁸c is the same thing as 3⁴c is equal to B. So instead of making one belt, I could take that same energy and ... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
And over here, I'm gonna have 6⁸c. 6⁸c is the same thing as 3⁴c is equal to B. So instead of making one belt, I could take that same energy and make 3⁴ of a toy car. 3⁴ of a toy car. So given everything that we've just done, which country has the comparative advantage in toy cars? Well, to figure that out, we just look... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
3⁴ of a toy car. So given everything that we've just done, which country has the comparative advantage in toy cars? Well, to figure that out, we just look at the opportunity costs for toy cars and we compare them. In country A, the opportunity cost is two belts. One country B, it's only 1 1⁄3 belts. So country B has th... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
In country A, the opportunity cost is two belts. One country B, it's only 1 1⁄3 belts. So country B has the comparative advantage right over here. Comparative advantage in toy cars. And then in belts, 1⁄2 of a car is less than 3⁴ of a car. In belts, in belts, we see that country A has the comparative advantage. And now... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
Comparative advantage in toy cars. And then in belts, 1⁄2 of a car is less than 3⁴ of a car. In belts, in belts, we see that country A has the comparative advantage. And now what's always interesting about thinking about this is, notice, country B has the comparative advantage in toy cars. It has less of an opportunity... | Input approach to determining comparative advantage AP Macroeconomics Khan Academy.mp3 |
What I want to do in this video is explore what the actual basket of goods looks like for the consumer price index. We had a ridiculously simple example in the last video. Right over here, this is a table I got. This is from a press release issued by the Bureau of Labor Statistics. If you do a search for CPI or CPI-U a... | Actual CPI-U Basket of Goods.mp3 |
This is from a press release issued by the Bureau of Labor Statistics. If you do a search for CPI or CPI-U and Bureau of Labor Statistics, you should find the press release where they issue the CPI. This is the first table in that press release. They say the consumer price index for all urban consumers, and just like w... | Actual CPI-U Basket of Goods.mp3 |
They say the consumer price index for all urban consumers, and just like we talked about in the last video, when people talk about the CPI index, they tend to be talking about the CPI-U, the CPI for urban consumers, because most consumers fall into this category, U.S. city average by expenditure category and commodity ... | Actual CPI-U Basket of Goods.mp3 |
They say that is 100 unless otherwise noted. What they do in this first column, these are the different buckets that people will spend, that the urban consumer might spend some of their money on. This is saying the basket of goods we're giving a weighting, so about a little under 15% is spent on food and beverages, and... | Actual CPI-U Basket of Goods.mp3 |
13% is on food, and then they even break it out between 7% or a little under 8% is food at home. Then they break it out between cereals, meats, dairy and related products, fruits and vegetables. Based on the way the basket looks, it looks like they're spending about the same amount on fruits and vegetables as they're s... | Actual CPI-U Basket of Goods.mp3 |
They're spending significantly less on, well, I don't know if that's a good trend right over there, but that's why this is interesting to look at, because this is viewed as a typical basket of goods for your average urban consumer. You can see they're spending a little bit more on meats, poultry and fish. You can see t... | Actual CPI-U Basket of Goods.mp3 |
They're spending 41% of the basket of goods on housing, and they even break that up in terms of some of it is your primary, some of it is your kind of just general shelter. Then there's stuff like food and fuels and utilities. That is encapsulated in your housing. You're going to have to heat your home and whatever els... | Actual CPI-U Basket of Goods.mp3 |
You're going to have to heat your home and whatever else. Then your furniture, 4% or 4.4% is spent on furniture. We could keep going down. This is pretty interesting to look at. The basket of goods, so this is viewed as a typical urban consumer, spending 3.6% on apparel, 17% on transportation, 6.6% on medical care, and... | Actual CPI-U Basket of Goods.mp3 |
This is pretty interesting to look at. The basket of goods, so this is viewed as a typical urban consumer, spending 3.6% on apparel, 17% on transportation, 6.6% on medical care, and almost a similar amount on recreation, a similar amount on education. They keep breaking it down into all of the different categories, a l... | Actual CPI-U Basket of Goods.mp3 |
You might say, wait, most people these days in the U.S. don't smoke, but the ones who do spend way more than this. This is an average of all of the people in the United States. For example, if 1 out of 10 people spent 10% of their income on tobacco and the other people don't smoke at all, then you might get on average ... | Actual CPI-U Basket of Goods.mp3 |
They keep breaking it down into other things. All of these weightings combined, they will add to 100. That is the entire basket of goods. Now what they do, this is their weighting. This column right over here essentially gives us the weighting as of December 2010. That's going to change as people's habits change or as ... | Actual CPI-U Basket of Goods.mp3 |
Now what they do, this is their weighting. This column right over here essentially gives us the weighting as of December 2010. That's going to change as people's habits change or as new goods and services emerge on the market, or frankly even as prices change, that will change. You have to have some weighting in which ... | Actual CPI-U Basket of Goods.mp3 |
You have to have some weighting in which to take a weight of the price changes or a weight to weight the average percent changes. They told us that unless otherwise noted, our base year is going to be 100. Relative to that base year, they then give us the prices, the price indices for each of these buckets in November ... | Actual CPI-U Basket of Goods.mp3 |
Then they're going to actually figure out their unadjusted percent change to December 2011 from. This is year over year from December the previous year. This is from the previous month. You can see the change from the previous year is much larger than the change from the previous month. One way to look at this, this is... | Actual CPI-U Basket of Goods.mp3 |
You can see the change from the previous year is much larger than the change from the previous month. One way to look at this, this is saying in November 2011, food and beverages on average were about 2.3 times more expensive than they were between 1982 and 1984. December 2011, they were about 2.31 times more expensive... | Actual CPI-U Basket of Goods.mp3 |
Just as an extra kind of data point, they actually give us this one little line here. They said if we set 1967 as the base year, then all items, so here all items, if we use the default base year of 1982 to 1984, in November 2011, all items were about 2.26 times as expensive as they were in 1982 to 1984. If we use 1967... | Actual CPI-U Basket of Goods.mp3 |
Remember, the base year is equal to 100. This is 6.77 times as expensive as they were in 1967. You could go down all of the categories to essentially see these are all relative to 1982 to 1984. You could see how much things have gotten more expensive. It's interesting. Things like furniture have not gotten that much mo... | Actual CPI-U Basket of Goods.mp3 |
You could see how much things have gotten more expensive. It's interesting. Things like furniture have not gotten that much more expensive relative to the early 80s. In fact, there are some categories that have even gotten cheaper. For example, new and used motor vehicles. It hasn't changed much at all since based on a... | Actual CPI-U Basket of Goods.mp3 |
In fact, there are some categories that have even gotten cheaper. For example, new and used motor vehicles. It hasn't changed much at all since based on at least this weighting. They do all these adjustments based on the quality of the car. You might say, wait, I'm spending more on my car than I did in 1982, but they'r... | Actual CPI-U Basket of Goods.mp3 |
They do all these adjustments based on the quality of the car. You might say, wait, I'm spending more on my car than I did in 1982, but they're making adjustments based on your car being that much better and all of that. It's not exactly an apples to apples comparison. You could see that based on those adjustments, it ... | Actual CPI-U Basket of Goods.mp3 |
You could see that based on those adjustments, it doesn't look like it's changed much. Things like medical care has gotten a lot more expensive since the early 80s, 4 times as expensive. You see right over there. Video and audio has gotten cheaper. Recreation in general has not gotten that much more expensive. Informat... | Actual CPI-U Basket of Goods.mp3 |
Video and audio has gotten cheaper. Recreation in general has not gotten that much more expensive. Information and information processing has gotten cheaper. Telephone service has not gotten that much more expensive. Communication has gotten cheaper. I don't know if you were around in the early 80s, but actually the co... | Actual CPI-U Basket of Goods.mp3 |
Telephone service has not gotten that much more expensive. Communication has gotten cheaper. I don't know if you were around in the early 80s, but actually the cost to call someone long distance has gone down dramatically. You even see personal computers. They have gotten cheaper. Once again, like the cars, there's an ... | Actual CPI-U Basket of Goods.mp3 |
You even see personal computers. They have gotten cheaper. Once again, like the cars, there's an adjustment for essentially they don't do it directly because obviously computers have gotten orders of magnitude more powerful, but they have gotten on cheaper average and they have gotten much, much more powerful. This is ... | Actual CPI-U Basket of Goods.mp3 |
This is fun to look at. You can see, looking right over here, tobacco and smoking products have become dramatically more expensive. You have more and more jurisdictions that are, for the most part, taxing it or whatever, making it harder and harder to buy. You see things like, it's just fun to look at. Dig around here.... | Actual CPI-U Basket of Goods.mp3 |
You see things like, it's just fun to look at. Dig around here. Medical, we already looked at this. The overview services, durables. A lot of these things are in this 1 to 2 to 3 price range. The stuff like medicine, tobacco, much more expensive. Things like computers, communications, much cheaper. | Actual CPI-U Basket of Goods.mp3 |
The overview services, durables. A lot of these things are in this 1 to 2 to 3 price range. The stuff like medicine, tobacco, much more expensive. Things like computers, communications, much cheaper. Then as we mentioned before, this measures the percent change to December 2011 from the previous year. That's why it giv... | Actual CPI-U Basket of Goods.mp3 |
In this video, I want to give you a general idea of what a bond is and why a company might even issue them in the first place. And just at a very high level, a bond is essentially a way for someone to participate in lending to a company. So you're a partial lender to a company. And just to make that more concrete, let'... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
And just to make that more concrete, let's imagine some type of company that has $10 million in assets. So these are its assets right there. And it has $10 million in assets. And let's say, just for the sake of simplicity, it has no liabilities, so all of that value, all of that $10 million is what is owned by the owne... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
And let's say, just for the sake of simplicity, it has no liabilities, so all of that value, all of that $10 million is what is owned by the owners or by the equity, the owner's equity, so this is $10 million in equity. And if we had, let's say, a million shares, I'll write it down, if we have a million shares and if w... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
It wants to increase its assets by $5 million so it can go out and buy a $5 million factory. So it wants, let me draw it right here, it wants another $5 million in assets that it needs to build that factory, or essentially a $5 million factory. And the question is, how does it finance it? Well, one way is that they cou... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
Well, one way is that they could just issue more equity. If they're able to get a price of $10 per share, they could issue another 500,000 shares at $10 per share, and then that would essentially produce $5 million. So this is scenario one. They issue 500,000 shares at $10 a share. They now have 1.5 million shares, but... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
They issue 500,000 shares at $10 a share. They now have 1.5 million shares, but these new owners gave them, collectively, $5 million. So the equity would grow by $5 million. We now have 1.5 million shares, so this would now be 1.5 million shares, not 1 million. And that new money from these new shareholders would go in... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
We now have 1.5 million shares, so this would now be 1.5 million shares, not 1 million. And that new money from these new shareholders would go into the asset side, and then we would use that to actually buy the factory. What I just described is essentially issuing equity, or financing via equity. Or by issuing stock. ... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
Or by issuing stock. Now, the other way to do it is to borrow the money. So let me redraw this company. I'll leave this up here just so we can compare the two. So once again, we have $10 million of assets. We have $10 million of equity to start off with. And instead of issuing stock to get the $5 million, we're going t... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
I'll leave this up here just so we can compare the two. So once again, we have $10 million of assets. We have $10 million of equity to start off with. And instead of issuing stock to get the $5 million, we're going to borrow the money. So we're essentially issuing debt. So we could go to a bank and say, hey, bank, can ... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
And instead of issuing stock to get the $5 million, we're going to borrow the money. So we're essentially issuing debt. So we could go to a bank and say, hey, bank, can I borrow $5 million? So we would have a $5 million in liability. It would be debt, $5 million of debt. And the bank would give us $5 million of cash th... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
So we would have a $5 million in liability. It would be debt, $5 million of debt. And the bank would give us $5 million of cash that we can then go use to buy our factory. So in either situation, the asset side of our balance sheet looks identical, or the assets of the company are identical. We had our $10 million asse... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
So in either situation, the asset side of our balance sheet looks identical, or the assets of the company are identical. We had our $10 million assets, and now we have a factory. But in this first situation, I was able to raise that money by increasing the number of shareholders, by increasing the number of people that... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
In this situation, I was able to raise the money by borrowing it. So the people that I'm borrowing this money from, this is borrowed money. They don't get a cut of the profits of this company. What they do is they get paid interest on their money that they're lending to us before these guys get any profits at all. In f... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
What they do is they get paid interest on their money that they're lending to us before these guys get any profits at all. In fact, that interest is considered an expense. So these guys get interest. And even if this company does super, super well and becomes very, very profitable, these guys only get their interest. L... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
And even if this company does super, super well and becomes very, very profitable, these guys only get their interest. Likewise, if the company does really bad and these guys suffer, as long as the company doesn't go bankrupt, these guys are still going to get their interest. So they're going to be a lot safer. Well, t... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
Well, they don't get as much of the reward as the new equity holders would. They also don't get as much of the risk. Now, this is just straight up debt. And you could just get this from any bank if they were willing to, if they said, oh, you're a good, safe company. We're willing to lend you $5 million. But let's say t... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
And you could just get this from any bank if they were willing to, if they said, oh, you're a good, safe company. We're willing to lend you $5 million. But let's say that no bank wants to individually take on that risk. So you say, hey, instead of borrowing $5 million from one entity, why don't I borrow it from 5,000 e... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
So you say, hey, instead of borrowing $5 million from one entity, why don't I borrow it from 5,000 entities? So what I can do instead, instead of borrowing it from one entity, I could issue these certificates. I could issue bonds. And that's the topic of this video. So I issue these certificates. They have a face value... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
And that's the topic of this video. So I issue these certificates. They have a face value of $1,000. This is my face value. Or sometimes you'll hear the notion of par value. And I'll say what interest I'm going to pay on it. So let's say I say it has a 10% annual coupon. | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
This is my face value. Or sometimes you'll hear the notion of par value. And I'll say what interest I'm going to pay on it. So let's say I say it has a 10% annual coupon. And it's actually called, even though this is the interest, I'm essentially going to pay $100 a year. It's called a coupon because when bonds were fi... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
So let's say I say it has a 10% annual coupon. And it's actually called, even though this is the interest, I'm essentially going to pay $100 a year. It's called a coupon because when bonds were first issued, they would actually throw these little coupons on the bond itself. And the owner of the certificate could rip of... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
And the owner of the certificate could rip off or cut off one of these coupons and then go to the person borrowing or the entity borrowing the money and get their actual interest payment. So that's why it's actually called coupons. But they don't actually attach those coupons anymore. And it has some maturity date. The... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
And it has some maturity date. The date that not only will I pay your interest back, but I'll pay the entire principal, the entire face value. So let's say the maturity is in two years. So in this situation, in order to raise $5 million, I'm going to have to issue 5,000 of these. Because 5,000 times 1,000 is 5 million.... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
So in this situation, in order to raise $5 million, I'm going to have to issue 5,000 of these. Because 5,000 times 1,000 is 5 million. So times 5,000. So if you wanted to lend $1,000 to this company so that they could expand, and if you think 10% is a good interest rate and it's a safe company, you would essentially bu... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
So if you wanted to lend $1,000 to this company so that they could expand, and if you think 10% is a good interest rate and it's a safe company, you would essentially buy one of these bonds. Maybe you buy it for $1,000. And when you buy that bond for $1,000, you are essentially lending this company that $1,000. And if ... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
And if you did that 5,000 times or if that happened 5,000 times amongst a bunch of different people, this company would be able to raise its $5 million. Now just to be clear how the actual payments work, the coupons tend to get paid semi-annually. So let me draw a little timeline here. And this tends to be the case in ... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
And this tends to be the case in the US and Western Europe. If this is today, this is in 6 months, this is in 12 months or 1 year, this is in 18 months, and this is in 24 months, and I'm only going up to 24 months because I said this bond matures in 24 months. So what is this? If you hold this bond, this certificate, w... | Introduction to bonds Stocks and bonds Finance & Capital Markets Khan Academy.mp3 |
Subsets and Splits
No community queries yet
The top public SQL queries from the community will appear here once available.