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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