Finance and Markets
Finance and Markets provides an in-depth introduction to the world of finance. You will learn how individuals interact with financial markets. Because most of you will end up working for private companies, you will also learn how companies interact with financial markets. Primary topics include:
- How do stock and bond markets work from the perspectives of both providers of capital (investors) and users of capital (firms, governments, etc.)?
- Time Value of Money: how do we calculate the value today of cash flows in the future?
- How do we determine prices for standard financial claims (stocks, bonds) issued by firms and bought by investors?
- Why is diversification of investments so important and how does diversification generate an equilibrium relationship between risk and expected return for investments like equity?
- How do firms decide which projects to pursue?
- Introduction to “exotic” financial products such as options, swaps and futures.
- Basic tools for optimizing your personal financial health.
We will emphasize the underlying principles and theories that pertain to each of these areas while at the same time presenting the context in which they operate. What we observe in the "real" world of finance results from the interaction of underlying principles with the current financial environment. The financial environment is bound to change, however, basic principles will remain the same. Understanding these basic principles will prepare you to operate in the financial environment of tomorrow, whatever tomorrow brings! Our objective, therefore, will be to understand why things happen in finance as opposed to memorizing historical facts. (Registrar Bulletin Description: In-depth introduction to the world of finance. Interaction of individuals and companies with financial markets)
Download the course syllabus for full details about expectations, readings, assignments and more.
- Explain the distinction between primary and secondary markets.
- Understand how secondary markets like the NYSE and NASDAQ stock exchanges support the primary markets where entities like public corporations actually raise capital.
- Describe the basic characteristics of stocks and bonds including how they are issued and how they are traded.
- Explain how financial institutions like banks, insurance companies and pension funds intermediate between suppliers and users of capital.
- Calculate the present value and future value of a lump sum, annuity, perpetuity, and growing perpetuity.
- Calculate important Time Value of Money values such as implied interest rates, annualized interest rates, payment schedules, etc.
- Value a basic fixed-income security like a Treasury Bond using Time Value of Money principals.
- Value a share of stock using the Dividend Discount Model and using comparison firm ratios like the Price/Earnings Ratio.
- Describe the importance of diversification from both an intuitive and a statistical perspective.
- Understand the distinction between systematic and non-systematic risk.
- Explain how the restrictive assumptions of the Capital Asset Pricing Model lead to an equilibrium relationship between relative exposure to systematic risk and the expected return of a risky security like corporate equity.
- Calculate a firm’s cost of capital.
- Estimate the free cash flows of an investment project using basic accounting information.
- Calculate a project’s Net Present Value and Internal Rate of Return.
- Understand how basic derivative securities like Futures, Options, and Swaps operate.
- Understand how basic derivative securities are used to manage risk.
- Write a feasible plan for saving and investing for life’s major events.