15.401 Managerial Finance - Andrew Lo

SLOAN SCHOOL OF MANAGEMENT

MASSACHUSETTS INSTITUTE OF TECHNOLOGY

Andrew W. Lo

15.401 Managerial Finance

Fall 2018

This course covers the fundamentals of modern financial analysis that are essential to any

manager, entrepreneur, investor, or other business professional. This course is organized

around three themes: (i) valuing a company, (ii) raising capital, and (iii) managing risk. Topics

include personal and corporate investment decisions, startup financing, risk analysis, and an

introduction to security analysis and asset management. This course is a prerequisite for all

other finance electives offered by the MIT Sloan Finance Group.

Class Schedule

The class meets twice per week: MW 2:30pm to 4:00pm, E62¨C276.

Recitations

The TA, Zied Ben Chaouch ziedbc@mit.edu, will hold recitations where class material will be

reviewed and additional applications and exercises presented. Recitation sessions will

take place on Tuesdays 4:00pm to 5:00pm, room E51¨C151.

Course Website:

Office Hours

Prof. Lo and Zied Ben Chaouch will hold regular office hours, and the times and locations will

be announced on the course website.

Tutoring

Extra help is available through the Core Tutoring Program:

(

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Administrative Assistant

Crystal Myler, E62-611, (617) 715¨C4840, cmyler@mit.edu.

Course Requirements and Grading

Course requirements include regular attendance and participation in class, short questions,

four problem sets, four case write-ups, and the midterm and final exams. The following

weighting scheme will be used to determine each student¡¯s course grade:

? 2018 by Andrew W. Lo

All Rights Reserved

5%

25%

25%

45%

Class Participation

Short Questions, Problem Sets, and Case Study Write-Ups

Midterm Exam

Final Exam

The closed-book in-class midterm exam will be on October 29th, and the closed-book

final exam will be given on the MIT-scheduled final exam date (week of December 17 to

21, precise date not yet assigned)¡ªplease reserve these dates and schedule your

interviews and travel plans accordingly.

Course Materials

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Class Notes and Recitation Notes. Notes will be available on the course website. They

contain material not found in Brealey, Myers, and Allen, and provide alternate

perspectives on the major themes of the course.

Problem Sets and Case Assignments. Problem sets and case assignments will be

available on the course website

Online courses (e.g., Excel, PowerPoint, Financial and Valuation Modeling, Interview

Prep, etc.) are available through .

Additional Readings (not required)

Recommended Textbook: R. Brealey, S. Myers, and F. Allen (BMA), Principles of Corporate

Finance, 12th edition, Irwin/McGraw Hill, 2017.

Z. Bodie, A. Kane, and A. Marcus (BKM), Investments, 11th edition, Irwin/McGraw Hill, 2017.

? BKM focus exclusively on capital markets. They provide a more rigorous and thorough

analysis of investments than Brealey, Myers, and Allen.

B. Malkiel, A Random Walk Down Wall Street, 2015.

? This best-selling introduction to investing is now in its 11th edition and is as popular as

ever because of its entertaining style and sage advice. This is a great way to ease into

financial markets, particularly for those who are not financially inclined.

P. Bernstein, Capital Ideas, Free Press, 2005.

? Bernstein was one of the most well-respected and influential practitioners in the

financial industry, and the founding editor of the Journal of Portfolio Management. This is

a lively and beautifully written account of the most important ideas in academic finance,

many of which were developed at MIT in the 1960¡¯s and 1970¡¯s.

15.401E

? 2018 by Andrew W. Lo

All Rights Reserved

Page 2 of 7

Staying Up to Date

You are encouraged to follow financial and macroeconomic news in the Financial Times, Wall

Street Journal, or The Economist.

Exams

The midterm and final exams will test your understanding of the key class concepts. They do

not test your ability to memorize or to use your calculator; instead, they probe your deeper

understanding of the material. As a result, they may be more challenging than the exams you

are used to. To prepare for these exams, you should review the slides together with your own

class notes, the required readings, the problem sets, the sample exams, and preferably the

suggested readings. The final exam is cumulative.

You will be allowed one double-sided page of notes at the midterm exam and two doublesided pages of notes at the final exam. The sheets must be no larger than 8.5¡±¡Á11¡±. There are

no restrictions on the contents, other than they have to be readable with the naked eye (no

microfiche allowed!).

If you must miss an exam, you will be required to make it up after the semester is over. No

laptops, Palm pilots, iPhones, Blackberries etc. are allowed during the exam.

Students can request their graded final exams after the end of the semester.

Short Questions, Problem Sets, and Cases

Short questions or problem sets will be posted before each class and administered online.

There will be four problem sets and four cases over the course of the semester. Short

questions, problem sets and cases are due at the beginning of class¡ªlate assignments will

not be accepted. You also need to acknowledge any help you received in your work. The exam

questions will have the same format as the problem sets.

Sloan Values

You are responsible for upholding Sloan¡¯s code of conduct, which mandates zero tolerance

for cheating and plagiarism. For more details on Sloan¡¯s academic policies, please read the

document Classroom Values in Practice which is available on the course website.

15.401E

? 2018 by Andrew W. Lo

All Rights Reserved

Page 3 of 7

Course Schedule

This is an approximate schedule for the course; some material may take longer or shorter

to cover than the time allotted.

Lecture

Date

Topic

1

9/5

Introduction

2

9/10

3

4

5

6

7

8

9

Assignment Due

9/11

Net Present Value 1

Recitation: Net Present Value

Lecture Question

9/12

Net Present Value 2

9/18

Capital Budgeting 1

Lecture Question

Recitation: Excel for Finance

Problem Set 1

9/19

Capital Budgeting 2

9/25

Case 1: Tottenham Hotspur

Lecture Question

Recitation: Capital Budgeting

9/26

Bonds 1

9/17

9/24

10/1

10/2

Bonds 2

Recitation: Bonds

Lecture Question

10/3

Stocks

Problem Set 2

10/9

Columbus Day ¨C No Recitation

10/8

Columbus Day ¨C No Class

10

10/10

10/11

Capital Structure

11

10/15

10/16

Case 2: UST

12

10/17

Financing a Startup

10/24

SIP Week ¨C No Class

13

15.401E

Case 1 Due; Lecture Question

10/22

10/29

10/30

Recitation: Stocks & Capital Structure (Lecture room TBD)

Recitation: Midterm Review

Case 2

SIP Week ¨C No Class

In-Class Midterm Exam

Recitation: Midterm Solution

? 2018 by Andrew W. Lo

All Rights Reserved

Page 4 of 7

Lecture

Date

Topic

Assignment Due

14

10/31

Case 3: Strava

Case 3

15

16

17

18

19

20

21

22

11/5

11/6

Diversification 1

11/7

Diversification 2

11/13

Veteran¡¯s Day ¨C No Class

Recitation: Diversification

11/14

Risks and Returns 1

11/20

Risks and Returns 2

Recitation: Risks and Returns

11/21

No Class

11/12

11/19

11/26

Lecture Question

Problem Set 3

Lecture Question

11/27

Case 4: Ameritrade

Recitation: Risks & Returns

Case 4

11/28

Options 1

Lecture Question

12/3

12/4

Options 2

Recitation: Options

Lecture Question

12/5

Options 3

Problem Set 4

12/11

Recitation: Options

23

12/10

24

12/12

15.401E

Recitation: Diversification

12/xx

Adaptive Markets Hypothesis

The Future of Finance and the

Finance of the Future

Final Exam (please check date

with Registrar)

? 2018 by Andrew W. Lo

All Rights Reserved

Page 5 of 7

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