FOUNDATIONS OF FINANCE (B01
NEW YORK UNIVERSITY
STERN SCHOOL OF BUSINESS
FOUNDATIONS OF FINANCIAL MARKETS (C15.0002.002)
Spring 2003
Professor Yoram Landskroner
Class: KMC 4-60
Time: MW 2:00- 3:15 pm
Office: KMC 8-51
Office Hours: MW 1:00- 2:00 pm
Tel: (212) 998 0913
E mail: ylandskr@stern.nyu.edu
Web:
TA: Carlos Galindo
TA Office Hours and Review Sessions:
TA email: cgd209@stern.nyu.edu
SYLLABUS (tentative)
Course Description
This course covers basics of financial markets, securities and how they are valued and the risks involved. The perspective is that of the investment manager who manages OPM in financial institutions such as banks, insurance companies, pension funds, mutual funds. The material covered in the course is of also relevant to investment decisions made by individuals and firms.
Textbooks
Bodie, Kane and Marcus (BKM), Essentials of Investments, 4th edition, McGraw-Hill, 2001.
Ross, Westerfield and Jordan (RWJ), Essentials of Corporate Finance, 3rd Edition, 2001 CUSTOM PUBLICATION
Holden, Spreadsheet modeling in the fundamentals of Investments, 00-1-version, 2002
Other Readings
Regular reading of the financial press: Wall Street Journal, New York Times, Financial Times, The Economist is highly recommended.
Prerequisites
C22.0103 Statistics for Business, V31.0002 or V31.0004 Economic Principles, C10.0001 Principles of Financial Accounting (co-requisite), and Sophomore standing. Finance is quantitative and you will need to utilize material learned in prerequisite courses
Grades, Exams, Problem Sets and Core Enhancement
Grades will be based on a mid-Term exam (30%), a final exam (50%), problem sets (10%), Core Enhancement (10%).
Exams The mid term and final exams are not cumulative. You must take them both. There will be no make-ups during the semester. The exams are in-class, multiple-choice with short explanations. They are closed book, but you can bring in one 8.5”x11” page of notes and should bring in your calculator. You may not enter any formulae or data in your calculator.
Problem Sets over the course of the semester about 8 problem sets will be assigned (see website). They will be graded. To receive credit they must be handed in on time and must be legible handwritten originals (no faxes, no word processors nor photocopies). You may work with other students on the problem sets but every student has to complete and hand in a separate answer. Solutions for the problem sets will be handed out in class. You should make a copy of your homework answers to compare to the solutions handed out.
Practice Problems: it is highly recommended that you solve end-of-chapter problems in BKM, The Solutions Manual provides detailed solutions.
Core Enhancement: will consist of an Internet based introductory course in financial modeling using Excel. All students will be required to complete the assignments. Further details will be given within the first two weeks of class by professor Grishchenko who will teach this part of the course. Again you may work with other students on the assignments but every student has to complete and hand in a separate answer.
Calculator
You will need a financial calculator that has present value, internal rate of return, log and exponential functions HP10BII (or HP12C) is suitable. You will need it for homework and exams (no laptop permitted in exams).
Class Attendance and Classroom Civility
You are responsible for knowing what goes on in class, which may include material not covered in readings, modifications and announcements concerning the syllabus, assignments and exams. Class participation is important and is encouraged.
Each lecture begins on time; please try not to come late. If you do come late minimize the disturbance to your classmates. Also try not to leave class before it is over. Respect your classmates’ desire to learn.
Honor code
You are responsible for maintaining Stern’s honor code, which mandates zero tolerance for cheating.
Course Outline
1. Elements of Investments
Overview of the Financial System
Markets, Securities and Investors
BKM: Ch. 1,2,3,5
2. Time value of Money
Interest rate calculations
Net Present Value and Internal Rate of Return
Applications
RWJ: Ch. 4,5,8 (pp. 62-67, 73-81)
3. Risk and Return
Decisions under Uncertainty
Diversification and Portfolio Analysis
BKM: Ch. 6 (pp.152-166), 7 (pp.185-199, 203-206, 212-215)
4. Capital Market Equilibrium
Index Models
Capital Asset Pricing Model
Arbitrage Pricing Theory
BKM: Ch. 6 (pp.168-179), 7 (pp.199- 202, 206-211), 8
5. Equity Valuation
Relative valuation
Dividend Models
BKM: Ch. 13
6. Bond Valuation
Bond Prices and Yields
Term Structure of Interest Rates
Managing Bond Portfolio- Duration and Immunization
BKM: Ch. 10, 11
7. Options and Futures
Options Strategies and Valuation
Futures and Swaps
BKM: Ch. 16,17,18
8. Market Efficiency (TIME PERMITTING)
Theory and Empirical Evidence
BKM: Ch. 9
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