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DRPS : Course Catalogue : Business School : Common Courses (Management School)

Postgraduate Course: Foundations of Finance Theory (CMSE11081)

Course Outline
SchoolBusiness School CollegeCollege of Humanities and Social Science
Credit level (Normal year taken)SCQF Level 11 (Postgraduate) AvailabilityNot available to visiting students
SCQF Credits15 ECTS Credits7.5
SummaryThe focus of this course is on the financial theory and empirical evidence that are useful for investment decisions.
Course description This course aims to develop students' understanding of the basic principles of financial markets and provides a very good foundation on how assets are valued and traded. The course considers stock market prices and returns; stock market risk and the influence of risk on the pricing of shares; interest rates and the pricing of bonds; and the characteristics and pricing of financial futures and options. It also considers Corporate Finance and Financial Theories. But the most important contribution of this course to your future career is how to use the academic insights to better assess risks and returns, and the trade-off between the two in your future decision making.

Scientific insights develop and change over time. Traditional views on financial markets are changing rapidly and many of the standard paradigms and theory are nowadays questioned. On the one hand because of recent developments like the recent financial crisis, on the other hand because of new theoretical and empirical developments in the academic literature. This course aims to consider issues from both theoretical perspective as well as practical perspective. It will address both the standard theory but also offer some of the new and alternative views. It is important to be aware off the most well used theoretical models from a practical point of view but it is also important for students who want to follow an academic career.

The topics covered in this course can be broadly categorised into three groups:

Corporate Finance and Financial Theories. This includes cost of capital, capital structure, equity issuance and valuation, capital budgeting, portfolio theory, the capital asset pricing model and the arbitrage pricing theory, all of which have become an integrated part of the decision-making in investments.

Empirical Evidence in the Equity Markets. This includes patterns in cross-sections of stock returns, the time-series behaviour of stock returns time-varying expected returns.

Introduction to Fixed-Income and Derivative Instruments. This includes bonds and options.
Entry Requirements (not applicable to Visiting Students)
Pre-requisites Co-requisites
Prohibited Combinations Other requirements For Business School PG students only, or by special permission of the School. Please contact the course secretary.
Course Delivery Information
Academic year 2018/19, Available to all students (SV1) Quota:  None
Course Start Semester 1
Timetable Timetable
Learning and Teaching activities (Further Info) Total Hours: 150 ( Lecture Hours 24, Seminar/Tutorial Hours 6, Formative Assessment Hours 28, Summative Assessment Hours 2, Programme Level Learning and Teaching Hours 3, Directed Learning and Independent Learning Hours 87 )
Additional Information (Learning and Teaching) Lecture Preparatory Reading 50 hrs; Exam preparation 37 hrs
Assessment (Further Info) Written Exam 70 %, Coursework 30 %, Practical Exam 0 %
Additional Information (Assessment) There is one group assignment which counts for 30% of the total mark (written report) and a final two hour exam which counts for 70% of the total mark.
Feedback Students will get feedback on the assignment, before the exam. Students will be asked to summarise readings and papers and will get in class feedback on this.
Exam Information
Exam Diet Paper Name Hours & Minutes
Main Exam Diet S1 (December)Foundations of Finance Theory2:00
Learning Outcomes
On completion of this course, the student will be able to:
  1. Rigorously analyse quantitative problems in finance
  2. Critically interpret financial data in the light of established theories
  3. Access a wide body of empirical research literature and critically appraise it
Reading List
Bodie, Kane and Marcus (2018), Investments, 11th edition, ISBN 978-1-260-08339-2, McGraw Hill

Only to be used for 4 lectures (not required to buy):
Brealey, R.A., Myers, S.C. & Allen, F. (2010), Principles of Corporate Finance, 10th edition, ISBN 978-007131426-8, McGraw-Hill.

2018/9 Resource List:
Additional Information
Graduate Attributes and Skills Cognitive Skills:
After completing this course, students should be able to:
* Analyse and evaluate quantitative problems;
* Implement solutions to these problems using a spreadsheet;
* Work independently and as part of a group.

Subject Specific Skills:
After completing this course, students should be able to:
* Understand the concepts of risk and return in financial markets;
* Be able to construct portfolios that are efficient in the sense that they maximise expected return for a given level of risk, or equivalently, minimise risk for a given expected return;
* Have a detailed knowledge of asset pricing models, including the capital asset pricing model and the arbitrage pricing theory; be aware of the empirical research that attempts to evaluate the validity of these models;
* Be able to determine the equilibrium expected return of an investment.
* Understand the principles of market efficiency; be aware of the empirical evidence on market efficiency.
* Be able to compute the price of bonds, futures and options.
* Understand the core concepts and techniques in corporate finance
* Be familiar with the key financial decisions facing a company and with the main ideas in academic finance about how those decisions are made
* Be able to conduct discounted cash flow analysis and estimate a company's cost of capital
* Understand arguments and debates concerning the topics covered in the corporate finance area
* Have developed their understanding of certain methods of research in finance, for example analysis of numerical data
* Have a knowledge of theoretical and empirical academic research in corporate finance
Course organiserDr Maria Michou
Tel: (0131 6)50 8341
Course secretaryMrs Kelly-Ann De Wet
Tel: (0131 6)50 8071
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