Foundations for Finance (50006)

Jun. Prof. Stefano Colonnello & Jun. Prof. Qizhou Xiong

Winter Semester 2017/2018

Lectures: Wednesdays 11:0013:00 in G12-201

Tutorials: Thursdays 15:0017:00 in G22A-122

Course website: Access through E-Learning

Contact details
First part
Jun. Prof. Stefano Colonnello
OvGU & IWH
Email: stefano.colonnello@iwh-halle.de

Second part
Jun. Prof. Qizhou Xiong
OvGU & IWH
Email: qizhou.xiong@iwh-halle.de

Tutorials
Antonios Mavropoulos
IWH
Email: antonios.mavropoulos@iwh-halle.de

Outline
Part I. Foundations of Financial Market

Introduction and Course Overview (lecture 1)

Financial decisions of households and corporations
Approaches to valuing financial and real assets
Opportunity cost of capital
The role of financial markets
Financial Markets and Institutions
Present Value (lecture 2)

1
 Present value (PV) and net present value (NPV)
Discount rates and the time value of money
Mechanics of NPV calculations
Compound interest
Annuity and perpetuity formulas
Real vs. nominal cash flows
Valuation of Bonds and Stocks (lecture 3-5)
Present value formula to value bonds
The term structure of interest rates
Real and nominal rates
Risk of default
Stocks trading
Stocks valuation
Valuing a business by discounted cash flow
Investment Decisions (lecture 6)
Net present value rule
Internal rate of return
Applying the NPV rule
Using NPV rule to choose projects
Portfolio Theory and Capital Asset Pricing Model (lecture 7)
Measuring Portfolio Risk
Calculating Portfolio Risk
Diversification and value additivity
The relationship between risk and return
Validity and role of the CAPM
Some alternative theories

Part II. Corporate Finance

Overview of Corporate Governance (lecture 8)

Cost of Capital (lecture 9)
Capital Budgeting (lecture 10-11)
Capital Structure (lecture 12-13)
Review (lecture 14)

Prerequisites: Basic concepts in financial mathematics, probability, and statistics

Evaluation: Final written exam

2
Structure
The course consists of lectures and tutorial sessions. Class participation is encouraged.

Readings
Brealey, R.; Myers, S.; Allen, F., Principles of Corporate Finance,12th Edition,
McGraw-Hill Higher Education: Boston, MA.
Further articles and material will be conveyed during the lecture.