Syllabus
This course is an introduction to capital markets and the financial management of a corporation. The aim is to provide a basic understanding of the important financial assets available in the capital markets as well a basic knowledge of corporate financial management problems.
The primary goal of this course is to impart the knowledge to allow you to intelligently solve practical business problems. To achieve this goal, it is crucial that you have a sound understanding of finance theory. As such, the course will be theoretical in nature, often requiring rigorous quantitative analysis.
Required Texts: Corporate Finance by Ross, Westerfield and Jaffe, 3rd Ed., Irwin
Packet of Readings
Optional Reading: The Economist, New York Times, Wall Street Journal, Financial Times
Reading: You should always reinforce the lectures by doing the assigned readings. You will notice that some topics that I consider to be very important will be covered in great detail (e.g., NPV). In this case the readings simply reinforce the lectures. Time does not allow us to cover most topics in this way. Thus, the readings necessarily also cover material that time does not permit us to cover during lectures. You are responsible for all the material covered in the assigned readings, regardless of whether I have time to cover it in class. Every student is also expected to keep abreast of current innovations in the business world. One way to do this is by reading, on a regular basis, one of the optional publications suggested above.
Exams: There will be a mid-term exam and a final exam. The mid-term will provide you with an early signal on how you are doing in the course. It will be held on October 18 and it will be reviewed in the following lecture.
Homework: There are six required homeworks. They are due at the beginning of class on the dates specified in the syllabus. The only effective way to prepare for the final exam is to do the homework. Thus, I would encourage you to form study groups to do and review the homework.
Grades: Your final grade will be determined by your performance on the homework, midterm and final exams. The actual percentages are:
Midterm Exam 35%
Final Exam 35%
Homework 30%
Policy on late assignments: Late assignments will not be graded and will be assigned a grade of zero. Since all deadlines are known on the first day of classes there is no reason for late assignments.
Course Outline
Note: Readings either refer to Corporate Finance or the packet of readings.
Monday, August 28
(i) Lecture:
Introduction
(ii) Reading:
Chapter 1- Introduction to Corporate Finance
Wednesday, August 30
(i) Lecture:
Financial Markets and the Firm
(ii) Reading:
Chapter 3- Financial Markets and NPV
Wednesday, September 6
(i) Lecture:
Net Present Value
(ii) Reading:
Chapter 4- NPV
Monday, September 11
(i) Lecture:
Bond Valuation
(ii) Reading:
Chapter 5: Sec. 5.1-5.3 + Appendix
(iii) Homework 1 due
Wednesday, September 13
(i) Lecture:
Stock Valuation
(ii) Reading:
Chapter 5: Sec. 5.4-5.9
Monday, September 18
(i) Lecture:
Alternative Investment Rules
(ii) Reading:
Chapter 6: Some Alternative Investment Rules
Wednesday, September 20
(i) Lecture:
Return in the Capital Market
(ii) Reading:
Chapter 9- Capital Market Theory
(iii) Homework 2 due.
Wednesday, September 27
(i) Lecture:
Diversification
(ii) Reading:
Chapter 10: Sec 10.1-10.7
Monday, October 2
(i) Lecture:
Capital Asset Pricing Model
(ii) Reading:
Chapter 10: Sec 10.8-10.10
Monday, October 9
(i) Lecture:
The Arbitrage Pricing Theory
(ii) Reading:
Chapter 11- The APT
Bower and Logue: A Primer on APT
Wednesday, October 11
(i) Lecture:
Empirical Evidence
Small Firm Effect
(ii) Reading:
Kiem: The CAPM and Equity Return Regularities
Reinganum: A Revival of the Small-Firm Effect
Berk: Does Size Really Matter?
(iii) Homework 3 due.
Monday, October 16
(i) Lecture:
The Current Status of Asset Pricing Theory
(ii) Reading:
Thaler: Anomalies
Mott and Coker: Earnings Surprise in the Small-Cap World
Wednesday, October 18
(i) Lecture:
Midterm Exam
Monday, October 23
(i) Lecture:
Midterm Exam Review
Wednesday, October 25
(i) Lecture:
Capital Budgeting
(ii) Reading:
Chapter 12: Risk, Return and Capital Budgeting
Monday, October 30
(i) Lecture:
Options
(ii) Reading:
Chapter 21: Sec 21.1-21.5
(iii) Homework 4 due.
Wednesday, November 1
(i) Lecture:
Option Relations
(ii) Reading:
Chapter 21: Sec 21.6-21.7
Monday, November 6
(i) Lecture:
Option Pricing
(ii) Reading:
Chapter 21: Sec 21.8
Wednesday, November 8
(i) Lecture:
The Application of Option Valuation
(ii) Reading:
Chapter 21: Sec 21.9-21.12
Black and Jones: Simplifying Portfolio Insurance
Monday, November 13
(i) Lecture:
Modigliani-Miller
Effect of Taxes
(ii) Reading:
Chapter 15:©Capital Structure
Haugen and Senbet: Corporate Finance and Taxes©
(iii) Homework 5 due.
Wednesday, November 15
(i) Lecture:
Market Imperfections
(ii) Reading:
Chapter 16: Limits to the Use of Debt
Monday, November 20
(i) Lecture:
Market Efficiency
(ii) Reading:
Chapter 13: Corporate Financing Decisions and Efficient Capital Markets
Monday, November 27
(i) Lecture:
Capital Budgeting II
(ii) Reading:
Chapter 17: Valuation and Capital Budgeting for the Levered Firm
Wednesday, November 29
(i) Lecture:
Dividend Policy
(ii) Reading:
Chapter 18: Dividend Policy: Why Does It Matter?
Bagwell and Shoven: Cash Distributions to Shareholders
Monday, December 4
(i) Lecture:
Anatomy of an IPO
(ii) Reading:
Ibbotson, Sindelar and Ritter: Initial Public Offerings
Beware the IPO Market
Inside the Deal that made Bill Gates $350,000,000
Chapter 19: Issuing Equity Securities to the Public
(iii) Homework 6 due.