|
Foundations of Finance (B01.2311) William L. Silber Fall 2012 Homepage: www.stern.nyu.edu/~wsilber Email:
wsilber@stern.nyu.edu |
|
SYLLABUS |
|
Texts (BKM) Bodie, Kane and Marcus, Essentials of Investments, 8th edition, Irwin, 2010. (RWJ) Ross, Westerfield and Jordan, Fundamentals of Corporate Finance, CUSTOM VERSION (includes chapters 4,5 and 8), (G) Garbade, Securities
Markets, CUSTOM VERSION (H) Handout Packet
(Note: BRING THIS TO EVERY CLASS). Prerequisites This
is a core course that assumes no prior background in finance. However, you
are expected to have an understanding of basic economic and statistical
concepts beforehand. From economics you should understand supply and demand
curves, including how shifts in the curves change the equilibrium price. You will
also need indifference curves from the core economics class. From statistics
you should understand mean, standard deviation, covariance and correlation as
descriptive statistics. The course website contains a statistics primer that
covers this material. By the third
week of class you will need probability statements based on the area under
the normal curve. By the fourth week of class you will need the regression
coefficient as a summary statistic. This material is covered in your
statistics core class but it is also summarized in the statistics
primer. Before and
After Book This pamphlet,
distributed on the first day of class, provides an outline of sub-topics
covered in each lecture as well as a list of concept questions that relate to
each topic. Use the pamphlet before reading the assigned material to
set the stage and after to check your comprehension. Emails Check your email
regularly for weekly outlines from me and other announcements Calendar Check the course
calendar in the Handout Packet or in the course website for scheduled
alterations in regular class meetings. In addition, the calendar lists dates
for the mid term, final, and other deliverables. TA Review
Sessions Monday and
Wednesday, 4:30-5:50, Room 2-70, KMC Web Reference The course web site
can be found under courses at www.stern.nyu.edu/~wsilber. Location Guide Class Videos: Available on my
web site. My Office: Room 965
in KMC TA Office: 7th floor in KMC Grades and Exams The distribution of
grades, as mandated by the finance department is as follows: A, A- : Between
20 and 25 percent of the class; C+ and lower: Between 10 and 15 percent of
the class; B+, B, B-: the remainder. Grades will be
based on a mid-term exam (42.5%), a final exam (42.5%) and problem sets
(15%). The "Market Tracking Assignment" (see the next item in the
Handout Packet) will form the basis of about 10% of the questions on each
exam. Also see the discussion under Classroom Responsibilities below. The mid-term and
final are not cumulative. You must
take them both. You must be present at the mid-term and final exam dates. There will be no make-up exams during the
semester. If you miss any exam you will have to wait until the beginning
of the next semester for a make-up. If you have a
qualified disability and will require academic accommodation for an exam
please contact the Moses Center for Students with Disabilities (CSD,
998-4980) and provide me with a letter from them verifying your registration and
outlining the accommodations they recommend. Group Study You are strongly
advised to set up study groups to
review the course material EACH WEEK. Do not wait until the exam. It is too
late. You may also do your homework problems together. A minimum of three
people is recommended for each study group. Try to include at least one non-finance major
in every study group. A good studying strategy is to review the concept
questions after each topic is covered in class, making certain that EVERY
member of the group leads the answer to one question. Problem Sets A pamphlet with
Problem Sets for the entire term will be distributed on the first day of
class. The problems are designed to provide numerical drill to complement the
conceptual class discussions and are NOT supposed to be representative of
exam questions. You must submit handwritten answers (no word
processors or photocopies) to each set (I-IV), and to the Real Time Exercise,
when they are due, as indicated in the course outline below. Late submissions will not be accepted.
You will receive full credit (3% per set) if you have made a good faith
effort to answer the questions, whether or not the answers are correct.
Partial credit will not be awarded. Calculator You will need a
calculator that has net present value, internal rate of return, yield to
maturity, natural logarithm and exponetial
functions. An HP10bII is sufficient
for this class. You are expected to
learn how to use a calculator on your own.
You will need it for homework and exams (only a financial calculator is permitted on exams -- no laptops, iphones, blackberries). Honor Code You are responsible
for maintaining Stern's honor code which mandates zero tolerance for
cheating. Violations of the honor code
will be prosecuted with a minimum penalty of failure for the course as
required by honor code rules. As indicated above, you may work in groups on
your homework problems but you must submit your own handwritten answers. The exams are closed book. You may bring to the exams only a writing
implement and your financial calculator.
In the event that your calculator is programmable you may NOT enter
any formulae or data. If you become
aware of any violations of the honor code you must take whatever steps are
necessary to stop the violators. Classroom Responsibilities and Civility Approach each class as though you were attending an
important business meeting – prepare, arrive on time, participate, but
do not try to dominate. Arrange your affairs so that you do not leave the
room during class (if you have a medical problem see me at the start of the
semester). Here are some specific guidelines
designed to promote a beneficial classroom experience: Class Participation: Students learn from questions asked
by other students as well as by answers from classmates, whether or not the
proposed answers are correct. Therefore, you
have a responsibility to come to class and participate in the
discussions. I will encourage class participation to the best of my ability,
turning to forced compliance only after friendly persuasion fails. No Late Seating: Each lecture begins exactly on time.
Latecomers disrupt the class no matter how quietly they enter. Therefore,
once the lecture begins, and the NO ADMITTANCE sign is posted on the door, please
do not try to enter the class. You will not be admitted. Watch the class on
video if you cannot make it on time. Absence from class should not be a
routine practice, however. Classroom participation is an important
responsibility. Side Conversations: Do not engage in side
conversations during the lecture, even in a whisper. They are distracting to
me and to your fellow students and will not be tolerated. No Laptops, Blackberries, or ANY email / internet
devices:
Laptops, blackberries, iphones, or other
communications devices are distracting to your fellow classmates. Please do
not bring them into class. If you are carrying one of these devices please
make sure they are completely shut (see the next item). If you want to use a
laptop for taking notes during class see me at the beginning of the semester. Cell Phone and Related Disturbances: You will be fined
$25 (towards a year end lunch party) if any ‘audible alert device’ creates a
disturbances during class time. Disturbance is broadly interpreted to mean
just about ANYTHING, such as an audible signal (a ring or a song), vibration,
tap-tap-tap, plus what ever else diverts our
attention. Try not to provide financial support for our end-of-semester
celebration. Failure to meet your classroom responsibilities may
adversely affect your grade |
|
COURSE OUTLINE Note: A star (*) next
to a Handout entry means you must prepare this item for classroom discussion 1. Overview and Market Structure (2
Sessions) BKM: Chapter 3; also skim Chapters
1 and 2 H: Readings # 1*, 2, 3* 2. Present Value, Yields and Returns (1
1/2 Sessions) RWJ: Chapter 4, 5. BKM: Section 1 in Chapter 5
(except p.112), Section 4 in Chapter 5, p.293, and p. 306. H: Reading # 4*, 5*, 6*, 7*, 8*, 9 3. Equilibrium One Period Yields (1/2
Session) BKM: Sections 3, 4 and 5 in Chapter 12 and
Section 4 in Chapter 5 (again) 4. Arbitrage and the Law of One Price (1
1/2 Sessions) BKM: Section 2 in Chapter 19 (until
p. 620) H: Readings # 10, 11*, 12*, 13 HAND IN PROBLEM SET I 5. Portfolio Analysis a. Two Risky Securities (2 1/2 Sessions) G: pp. 111-116, 122-131, 131-137, 145-155 BKM: Chapter 5 (Sec. 2, 3), Chapter
6 (Sec. 1, 2) H: Readings # 14, 15*,
16*, 17*, 18*, 19* b. Risk Free and Multiple Risky Securities (2 Sessions) G: pp. 160-164, 165-174 BKM: Chapter 5 (Sec. 5), Chapter 6
(Sec. 3, 4, 5, 6) H: Readings # 20*, 21, 22*, 23* Email: Open Portfolio
Optimizer Program and experiment with it 6. Capital Market Equilibrium (2
Sessions) G: pp. 179-189, 199-210, 174-176,
213-219 BKM: Chapter 7 (Sec. 1, 2, 3, 4),
Chapter 18 (Sec. 1) H: Reading # 24*, 25 HAND IN PROBLEM SET II (make a copy
for yourself) MID-TERM EXAM (1
Session) 7. Introduction to Capital Budgeting (1
Session) RWJ: Chapter 8 H: Reading # 27* 8. Common Stock Valuation (1 1/2
Sessions) BKM: Chapter 13 (pp. 395-404, 410-417,
418-422) H: Readings # 28*, 29 Web: Visit www.yahoo.com
,click on finance, enter a stock symbol, look at ‘profile’ to view company
characteristics COLLECT DATA ON REAL TIME EXERCISE SUBMIT MARKET TRACKING CONTEST 9. Fixed Income Securities a. Yield Calculations (1 1/2 Sessions) BKM: Chapter 10 (pp.288-289,
Sec. 2, 3, 4) and Chapter 2 (pp. 24-26) H: Readings # 30*, 31*,
32*, 33, 34 HAND IN REAL TIME EXERCISE b. Yield Curve and Forward Rates (2 Sessions) BKM: Chapter 10 (Sec.
6) H: Readings # 35*, 36,
37*, 38*, 39*, 40*, 41 c. Duration
(1 Session) BKM: Chapter 11 (Sec. 1, 2, 3) H: Readings # 42*, 43,
44* d. Swaps
(1 Session) BKM:pp.
567-569 H: Readings # 45*, 46*,
47* e. Risk and Tax Structure [Required Reading Assignment] BKM: Chapter
10 (Sec. 1, 5), Chapter 2 (Sec. 2) HAND IN PROBLEM SET III 10. Options (3 1/2 Sessions) BKM: Chapters 15
(except pp.482-484), 16 (except
Sec. 2) H: Readings # 48*, 49,
50*, 51*, 52*, 53*, 54 Web: Visit http://www.option-price.com/index.php
to price options 11. Efficiency (1 Session) BKM: Chapter 8 H: Readings # 55 HAND IN PROBLEM SET IV (Make a copy
for yourself) *
* * * FOR
YOUR READING PLEASURE Peter Bernstein's Capital
Ideas (Wiley, 2005) provides a
wonderful overview of how the great ideas of finance arose. His book is the
best way to appreciate the revolution in finance during the past half
century. Burton Malkiel's A Random
Walk Down Wall Street (Norton 2011) is the only investment guide you will
ever need. He sells nothing but sound advice. Roger Lowenstein's When Genius Failed (Random House,
2000) is a best seller about the best and the brightest in finance. It
contains an important cautionary message. My book, VOLCKER: The Triumph of Persistence (Bloomsbury, 2012), is the
biography of Paul A. Volcker, the former Chairman of the Federal Reserve
Board, who battled three major crises during his fifty years of public
service: gold in 1971, inflation in 1979, and sub-prime mortgages in 2007. Read
it for the history and the lessons. |
'