Lecture 7 - Collateral, Present Value and the Vocabulary of Finance

Financial Theory


While economists didn't have a good theory of interest until Irving Fisher came along, and didn't understand the role of collateral until even later, Shakespeare understood many of these things hundreds of years earlier. The first half of this lecture examines Shakespeare's economic insights in depth, and sees how they sometimes prefigured or even surpassed Irving Fisher's intuitions. The second half of this lecture uses the concept of present value to define and explain some of the basic financial instruments: coupon bonds, annuities, perpetuities, and mortgages.