Financial Mathematics II
Math 289/369
Fall 2004
Classes: MW: 3:00 – 4:15 Instructor: James G. Bridgeman, FSA
MSB 211 MSB408
Office Hours: M & Th
10:00 – 12:00 8604868382
(note changes) W: 12:30 – 2:00
bridgeman@math.uconn.edu
F: 1:30 – 3:00 instructor's web site math.uconn.edu/~bridgeman
Or by appointment course web site
math.uconn.edu/~bridgeman/math369/index.html
Context for the Course
Required for the
Professional Master’s degree in Applied Financial Mathematics
Partial preparation for SOA/CAS course 2 examination on Interest Theory, Economics and Finance
(Next scheduled for Wednesday Nov. 3, 2004)
Anticipated to be certified for SOA/CAS Validation by Educational Experience (VEE)
Introduction to the Applied Mathematics of Corporate Finance
Brealey & Myers, Principles of Corporate Finance (7^{th} ed.)
Various resources as referenced in the text
Society of
Actuaries, Study Note Package for course
2 examination, see http://www.soa.org/
ACTEX/Mad River Books
(distr.), Study Manuals and related material for Course 2 Exam
Chew, The
New Corporate Finance/where theory meets practice (3^{rd} ed.)
Megginson, Corporate Finance Theory
Ho & Lee, The
Panjer
(ed.), Financial Economics
Term Paper 10%
2 Takehome Quizzes 10%
Minicases 20%
Midterm Exam 25%
Final Exam 35%
Although graduate students (369) and undergraduates (289) will take the same quizzes and exams, the
grading will be adjusted to demand higher performance from the graduate students.
Outline & Intended Pace



Week of 
Topic(s) 
Chapter 

Aug. 30 
Financial profession – decisions about value; cash flow; valuation; Net present value principle; opportunity cost of capital 
Ch.1, 2 

Sept. 6 
Financial statement analysis – where (when) is the cash? 


Sept. 13 
Free cash flow; equity valuation; project net present value 
Ch.4, 5 

Sept. 20 
Project decisions/valuation; expected value of cash flow; variance of returns 


Sept. 27 
Market price of risk; capital asset pricing model 


Oct. 4 
Risk adjusted opportunity cost of capital; handling cash flow uncertainty 


Oct. 11 
Where value comes from; measuring valuecreation 
Ch.11, 12 

Oct. 18 
Market returns;
market efficiency; midterm exam Oct. 18 (thru 
Ch.13 

Oct. 25 
Sources of financing; accessing financing 
Ch.14, 15 

Nov. 1 
Dividends and returns; debt leverage on returns 
Ch.16, 17 

Nov. 8 
Debt effects on expected cash flows 


Nov. 15 
Debtadjusted opportunity cost of capital  WACC 
Ch.19 

Nov. 29 
Option cash flows; valuation when net present value won’t work 


Dec. 6 
Real options and their value 
Ch.22 


Final Exam TBD week of Dec. 13  18 
All 

A paper will be due on December 8. Graduate students (369) will choose any of the main
topics (text chapters) in the syllabus and prepare a paper covering it in more depth, or presenting
extensions of the material in it, after consulting outside references. Undergraduates (289) may do
the same, or they may write on a general topic that will be announced in class early in the semester.
There will be two takehome quizzes assigned, the weeks of Sept. 27 and Nov. 15. They will be
designed to challenge and you may work in teams to come up with the answers. .
Graduate students (369) will submit the minicases for chapters 3, 4, 5, 6, 9, 10, 11, and 21 within a week
after the completion of the chapter. Undergraduates (289) will submit the minicases for
chapters 3, 4, 5, 6 and 11.
Both the syllabus and the grading plan are subject to change with appropriate advance notice
to the class.