30414 - PRINCIPLES OF FINANCE

To feel comfortable in this course, students should be familiar with differential and integral calculus, linear algebra, basic statistics and basic microeconomic theory.

During the last 40 years, the financial services sector has grown enormously. This growth is apparent whether one measures the financial sector by its share of GDP, by the quantity of financial assets, by employment, or by average wages. By 2020 the financial services sector contributed 16 percent to the world GDP, compared to less than 5 percent in 1980 and about 2 percent in 1950. Workers in the financial sector have benefitted impressively from this growth: in 1980, the typical financial services employees earned about the same wages as their counterpart in other industries; by 2017, employees in financial services earned on average twice as much. Attracted by high wages, graduates of elite universities flock into the financial services industry. But how does finance create so much value for society? The course mission is to analyze the main principles of finance, namely: - Valuation and Capital Allocation. - Risk, Return, and Diversification. - Market Efficiency and Behavioral Finance. - Financial Structure: Equity and Debt.

• Finance and Big Data: Asset Prices and Asset Returns.
• Valuation of Stock and Bonds.
• Capital Budgeting.
• Mean-Variance Analysis and Portfolio Diversification.
• Equilibrium in Financial Markets: The Capital Asset Pricing Model (CAPM).
• Market Efficiency and Behavioral Finance: Definitions and Empirical Tests.
• Financial Structure and the Value of the Firm.
• Payout Policy.

• Illustrate and explain how investors make portfolio allocation decisions and how assets are priced in financial markets.
• Illustrate and explain how firms set their financial strategies, including capital budgeting (which investments to make), capital structure (how to raise capital), and payout policy (how to return profits to shareholders).
• Describe and summarize the extent to which the leading finance theories really work in the data and in the real world.

• Apply capital budgeting techniques to evaluate investment projects and capital allocation decision.
• Compute cost of capital and choose financial structures for investment projects.
• Solve portfolio allocation problems.

• Face-to-face lectures
• Guest speaker's talks (in class or in distance)
• Exercises (exercises, database, software etc.)
• Case studies /Incidents (traditional, online)
• Individual assignments
• Group assignments

• The learning experience of this course is based on face-to-face lectures and individual as well as group assignemnets. Each class is enriched by interactive discussion of how to solve discussion questions.
• Guest speakers' talks may complement the learning experience. The use of external speakers aims at better connecting the body of knowledge covered in the course with real life examples, typically focused on complex cases.
• The interaction between the instructor and students during the discussions and the presentations helps students understand how professionals in the field approach a real-life problem.

The students can take one optional partial exam (end of March) based on first half of syllabus and must take one general exam based on the full syllabus. Thus, there are two possible cases:

Case 1: student took both partial and general exam. Then the final grade will be the maximum of 

a)     A combination of the student’s grade on the partial (weight of 40%) and the general exam (weight of 60%), and

b)     A 100% weight on the general exam (the grade of the partial exam is valid until 31/12/2024)

Case 2: student did not take the partial exam. Then the final grade will be the grade of the general exam (weight 100%).

• I. WELCH, Corporate Finance, 4th Edition (downloadable for free at http://book.ivo-welch.info/read/).
• In addition, I post on Bboard class notes, assignments, and additional readings to complement the textbook.