Syllabus 2008/2009 MIO140

Syllabus academic year 2008/2009
(Created 2008-07-17.)

FINANCIAL MANAGEMENT

MIO140

Higher education credits: 6. Grading scale: TH. Level: G2 (First level). Language of instruction: The course will be given in Swedish. Compulsory for: I3, INEK4. Optional for: M4, RH4, W4. Course coordinator: Peter Berling, Peter.Berling@iml.lth.se, Produktionsekonomi. Prerequisites: MIO040 Advanced course in Managerial Economics. Assessment: Examination consists of a written exam in the end of the course, which consists of 8-10 questions and three compulsory computer exercises. To pass the course students should earn 50% of the total points of the written exam and have a grade pass for all the computer labs. The attendance at the three computer labs is compulsory. After each lab the students should hand in a written report. A failed report can be corrected by the students and handed in again for evaluation. The lab reports can be handed in only during the course period and in connection with the retakes. Home page: http://www.iml.lth.se/pm/Education.

Aim
The goal of the course is to give the students a general understanding of the financial theories both from a company perspective, by studying the financial decisions of companies, and a market perspective, by describing the mechanisms that govern the financial markets as well as pricing financial assets and managing financial risks.

The course covers issues related to the financial markets both from the borrowers and the investors viewpoint. The course is also divided into two different parts regarding the choice of the financial assets under the consideration. The first part deals with equity capital and related derivatives, while the second part focuses on fixed income securities.

More specifically, the goal of the course is to give the students:

a background understanding of the theories and related computational techniques regarding the companies financing activities and dividend policies.
a background understanding of existing theories on pricing different financial assets and managing risks in the global financial markets including the currency markets.
a background knowledge on pricing financial derivatives, including equity options, interest rate derivatives and real options.

Knowledge and understanding
For a passing grade the student must

have the following knowledge and understanding:

relevant concepts and models
return and risk premium of stocks and stock portfolios
capital budgeting
capital structure policy and its effect on company value
dividend policy and its effect on company value
option pricing theories
pricing fixed income securities and interest rate risk
existing mechanisms and financial instruments in the global financial markets including the currency markets.

Skills and abilities
For a passing grade the student must

after completing the course, including lectures, exercises and computer exercises, have the ability to

compute payoffs and returns on stocks
compute the costs of capital associated with funding investment projects
compute the capital structure of companies and to understand the differences in their choice of optimal capital structure.
compute the effect of the dividend policy of the companies on the stock values.
determine the relationships between interest rates with different maturities and to measure the interest rate risk.
use real data to describe the relationship between the domestic money markets and foreign exchange markets.

The students are expected to be able to employ the established technical terms and to communicate in a comprehensible manner the problem, solutions and arguments from the quantitative studies in finance. After completion of the course the students should be able to independently search for and evaluate information from other sources within finance to develop their knowledge within this field.

Contents
The course consists of the following subjects:

risk, return and portfolio selection theory
capital budgeting
efficient markets
dividend and capital structure policy
option pricing
interest rates and pricing fixed income securities
measuring and managing interest rate risks
international money and currency markets
instrument

Literature
Berk, J. & DeMarzo, P.: Corporate Finance plus MyFinanceLab. Pearson Addison Wesley, Boston 2007.
Lecture notes available on the courses website.