30414 - PRINCIPLES OF FINANCE
Course taught in English
Go to class group/s: 25
To feel comfortable in this course, students should be familiar with differential and integral calculus, linear algebra, basic statistics and basic microeconomic theory.
During the last 40 years, the financial services sector has grown enormously. This growth is apparent whether one measures the financial sector by its share of GDP, by the quantity of financial assets, by employment, or by average wages. By way of an example, by 2020 the financial services sector contributed 16 percent to the world GDP, compared to less than 5 percent in 1980 and about 2 percent in 1950. Workers in the financial sector have shared impressively in this growth: in 1980, the typical financial services employees earned about the same wages as their counterpart in other industries; by 2017, employees in financial services earned on average twice as much. Attracted by high wages, graduates of elite universities flock into the financial services industry. But how does finance create so much value for society? The course mission is to analyze the main principles of finance, namely: - Valuation and Capital Allocation. - Risk, Return, and Diversification. - Market Efficiency and Behavioral Finance. - Financial Structure: Equity and Debt.
- Finance and Big Data: Asset Prices and Asset Returns.
- Valuation of Stock and Bonds.
- Capital Budgeting.
- Mean-Variance Analysis and Portfolio Diversification.
- Equilibrium in Financial Markets: The Capital Asset Pricing Model (CAPM).
- Market Efficiency and Behavioral Finance: Definitions and Empirical Tests.
- Financial Structure and the Value of the Firm.
- Payout Policy.
- Illustrate and explain how investors make portfolio allocation decisions and how assets are priced in financial markets.
- Illustrate and explain how firms set their financial policies, including capital budgeting (which investments to make), capital structure (how to raise capital), and payout policy (how to return profits to shareholders).
- Describe and summarize the extent to which the leading finance theories really work in the data and in the real world.
- Apply capital budgeting techniques to evaluate investment projects and capital allocation decision.
- Compute cost of capital and choose financial structures for investment projects.
- Solve portfolio allocation problems.
- Face-to-face lectures
- Guest speaker's talks (in class or in distance)
- Exercises (exercises, database, software etc.)
- The learning experience of this course is mainly based on face-to-face lectures. Each class is enriched by interactive discussion of how to solve assignment questions.
- Guest speakers' talks may complement the learning experience. The use of external speakers aims at better connecting the body of knowledge covered in the course with real life examples, typically focused on complex cases.
- The interaction between the instructor and students during the discussions and the presentations helps students understand how professionals in the field approach a real-life problem.
|Continuous assessment||Partial exams||General exam|
With the purpose of measuring the acquisition of the above-mentioned learning outcomes, the students’ assessment is based on a written partial exam and a written general exam.
Both written (partial and general) exams consist of multiple choice questions and exercises aimed at assessing the students’ ability to apply the analytical tools illustrated during the course, to solve and explain models of how investors make portfolio allocation decisions and how assets are priced in financial markets, to solve and explain models of how individuals and firms set their financial policies, including capital budgeting, capital structure, and payout policy.
Students who attended at least 70% of classes can take the partial exam. For students who attended at least 70% of classes and took both partial and general exams, the final grade is the maximum between:
- A combination of the grade on the partial (weight of 40%) and on the general exam (weight of 60%).
- A 100% weight on the general exam.
For students not attending the grade is entirely determined by the general exam (weight of 100%).
- I. WELCH, Corporate Finance, 4th Edition (downloadable for free at http://book.ivo-welch.info/read/).
- In addition, I post in Bboard class notes to complement the textbook.