Now, I'm going to talk about the assumptions of the course.

Again, something fundamental to all the courses and

the specialization and I would encourage you to pay some attention to these.

The first one is probably the most important, which is competitive markets.

By that I mean that there is competition, a reasonable amount of competition,

so that actually you can use information out there to value stuff.

What do I mean by that?

That one of the major advantages

of competitive markets is that we have prices.

We have prices for different things and those prices help us value other stuff.

And you'll see throughout this program that all valuation is relative,

because we happen to know what the value of something already is.

So you're able to figure out the value of what you want to do.

And for that, you need competitive markets.

I recognize that this course is all over the world and

you don't have competitive markets in many parts of the world,

not as competitive as other markets, but we need this frame work to think about it.

Later on as we go more advanced and you do more work, you can do some adjustments for

some situations that markets are not competitive, but this is very important.

The second feature, which is important to finance is the reflection of

competitive markets again and which is we'll assume that capital, i.e.,

money, finance flows easily across even geographic boundaries.

In other words, we are going to assume that if that is a good idea

money will flow to it through banks, even internationally and

I think it's a fair assumption to make.

It's not perfect, none of our assumptions are going to be perfect.

None of your assumptions are going to be perfect, but these two come together,

i.e., competitiveness in the marketplace.

For money, competitiveness in the marketplace for products.

Frictions are small.

By that I mean the following.

By friction,

you can take off taxes, you can think of the time it takes to do something.

What do I mean by frictions are small?

By that I mean that suppose you have an idea and you want to make it real.

We are working in competitive markets with good flow of capital and

things other than your idea won't prevent it from happening.

So government will not come in the way and so on.

Again, I recognize that this is not a good assumption in many parts of the world and

life does have frictions, but

we will bring them into the situation more in discussion mode.

But we'll try to keep our ideas simple and clean, so that we can make things happen.

Finally, we will incorporate real world issues,

including taxes and so on as we progress.

So another way to think about it is we will make things more and

more complicated in courses 3 and 4.

Why are we doing this in such a systematic way?

Is because if I throw everything at you in course number 1,

all the world in its fascination and complexity, you will struggle.

I did.

So we want to teach you in ways which is simplifying things a little bit and

then putting everything together.

So another way to think about this whole

specialization is we are taking you to the real world.

Do the best we can, but in a very thoughtful way, so

that you don't get lost.

You will get lost doing some difficult problems, [LAUGH] but the structure

supports you in your learning and then you can find your own path.

I hope these assumptions helped you.

Please recognize the assumptions will change as the courses change, but

I want to give you a sense of competitive markets,

capital flows happening easily as being fundamental to modern finance.

I hope you liked this introduction to the presumptions and

the introduction to this specialization.

Thank you.

Specialization: Assumptions

Valuation: Alternative Methods

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