Postgraduate Course: Foundations of Finance Theory (CMSE11081)
||College||College of Arts, Humanities and Social Sciences
|Credit level (Normal year taken)||SCQF Level 11 (Postgraduate)
||Availability||Not available to visiting students
|Summary||The focus of this course is on finance theory and empirical evidence that are useful for investment decisions.
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 of 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:
*Financial Theories. This includes 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. It will also discuss patterns in cross-sections of stick returns, the time-series behaviour of stick returns time-varying expected returns.
*Introduction to Fixed-Income and Derivative Instruments. This includes bonds, options and futures.
*Corporate Finance: This includes capital budgeting, cost of capital, capital structure.
Student learning experience:
Students should devote 40 hours on understanding pre-recorded lectures and assigned readings (at least 4 hours per week). Students should engage with weekly materials (videos and assigned readings) before the scheduled seminar in the following week. Weekly seminars will explore and reinforce key themes from the weekly materials through a combination of discussion points, exercises, and Q&As. Course discussion board also allows students to ask questions outside of contact time. Student learning is best achieved if students engage with and reflect on any assigned problems/discussion points before weekly seminars. Students should actively seek feedback on their performance by engaging with weekly seminars and discussion board.
Entry Requirements (not applicable to Visiting Students)
||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 2020/21, Available to all students (SV1)
|Learning and Teaching activities (Further Info)
Lecture Hours 24,
Seminar/Tutorial Hours 6,
Programme Level Learning and Teaching Hours 3,
Directed Learning and Independent Learning Hours
|Additional Information (Learning and Teaching)
Lecture preparation 40 hrs; Post lecture study 77 hrs
|Assessment (Further Info)
|Additional Information (Assessment)
||Individual Project that counts for 100% and includes a Financial Modelling element. Assessing all learning outcomes for the course.
||Students will get feedback on their individual project.
Students will also gain feedback on their understanding of the material when they discuss their answers to the tutorial questions in the tutorials. Students may also ask questions in Lectures to assess their knowledge.
|No Exam Information
On completion of this course, the student will be able to:
- Rigorously analyse quantitative problems in finance.
- Critically interpret financial data in the light of established theories.
- Access a wide body of empirical research literature and critically appraise it.
- Problems solving using Financial Modelling.
|Resource List: https://eu01.alma.exlibrisgroup.com/leganto/public/44UOE_INST/lists/26181289650002466?auth=SAML|
|Graduate Attributes and Skills
After completing this course, students should be able to:
* Analyse and evaluate quantitative problems;
* Implement solutions to quantitative problems using financial modelling;
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, options and futures.
* 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 organiser||Dr Maria Michou
Tel: (0131 6)50 8341
|Course secretary||Mrs Kelly-Ann De Wet
Tel: (0131 6)50 8071