The course consists of four parts. The first part focuses on the valuation of investment projects. After covering the NPV rule, we will study how to choose between investment projects when there are resource constraints or when projects are mutually exclusive. We will then turn to fundamentals of capital budgeting and deal with topics such as cash flow calculations, break-even analysis and sensitivity analysis.
The second part of the course deals with the valuation of different types of financial securities. After covering fixed income securities and the yield curve, we will focus on methods to value common stocks as well as options, futures and other derivatives.
The next part will introduce students to the trade-off between risk and return. We will first study portfolio theory, including topics such as diversification, systematic and idiosyncratic risk. Then we will cover the Capital Asset Pricing Model (CAPM) and consider applications of the CAPM. Students will be exposed to key concepts including market efficiency and arbitrage.
The final part of the course centers on corporate finance and focuses on firms' optimal financing decisions and cost of capital, payout policy, and risk management.