Postgraduate Course: Foundations of Finance Theory (CMSE11081)
Course Outline
| School | Business School |
College | College of Humanities and Social Science |
| Credit level (Normal year taken) | SCQF Level 11 (Postgraduate) |
Availability | Not available to visiting students |
| SCQF Credits | 15 |
ECTS Credits | 7.5 |
| Summary | The focus of this course is on the financial theory and empirical evidence that are useful for investment decisions.
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| Course description |
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 and Equity Options 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.
Syllabus
Introduction to Finance Theory
Portfolio Theory
Efficient Portfolios
Factor Models
Capital Asset Pricing Model (CAPM)
Arbitrage Pricing Theory (APT)
Market Efficiency
Fixed Income Securities
Options and Futures
Introduction to Corporate Finance
Capital Budgeting
Cost of Capital
Capital Structure
Equity Issuance and IPO Valuation
Student Learning Experience
The learning occurs primarily through reading and thinking about the papers or chapters of books recommended and discussion in class when appropriate. This reading is supported by the programme of twelve lectures, in each of which an overview of the topic is presented and the findings of a number of relevant papers are reviewed in some detail in some lectures. Students are required to write a group report. All students are expected to participate actively in class discussion. Supplementary set of exercises and solutions will be also provided for each topic.
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Entry Requirements (not applicable to Visiting Students)
| Pre-requisites |
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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
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| Academic year 2015/16, Available to all students (SV1)
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Quota: None |
| Course Start |
Semester 1 |
Timetable |
Timetable |
| Learning and Teaching activities (Further Info) |
Total Hours:
150
(
Lecture Hours 24,
Seminar/Tutorial Hours 4,
Supervised Practical/Workshop/Studio Hours 2,
Summative Assessment Hours 2,
Programme Level Learning and Teaching Hours 3,
Directed Learning and Independent Learning Hours
115 )
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| Assessment (Further Info) |
Written Exam
70 %,
Coursework
30 %,
Practical Exam
0 %
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| 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 |
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| Main Exam Diet S1 (December) | Foundations of Finance Theory | 2:00 | |
Learning Outcomes
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
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Reading List
E. Elton, M. Gruber, S. Brown, and W. Goetzmann (2014), Modern Portfolio Theory and Investment Analysis, 9th edition, ISBN 978-1-118-46994-1, Wiley.
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.
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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
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| Keywords | finFoundationsofFinanceTheory |
Contacts
| Course organiser | Dr Maria Michou
Tel: (0131 6)50 8341
Email: |
Course secretary | Miss Rachel Allan
Tel: (0131 6)51 3757
Email: |
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