University of Connecticut

Financial Mathematics II – Applied Mathematics of Corporate Finance

Math 369

Fall 2006

Classes: MW: 3:00 – 4:15                                   Instructor: James G. Bridgeman, FSA

MSB215                                 MSB408

Office Hours: M 10:00 – 12:00                           860-486-8382

Th  10:00 –12:00                             bridgeman@math.uconn.edu

Th/F: 2:00 - 3:00               websites: instructor’s math.uconn.edu/~bridgeman

Or by appointment                      course: math.uconn.edu/~bridgeman/math369f06/index.html

For an introduction to derivatives enrollees in this course must also enroll in math300, section 05: (1 credit)

W: 4:25 – 5:15  MSB215

Context for the Course

Required for the Professional Master’s degree in Applied Financial Mathematics

Certified for SOA/CAS Validation by Educational Experience (VEE) in Corporate Finance

# Specific Course Content

Introduction to the Applied Mathematics of Corporate Finance

# Required Text

Ho & Lee, The Oxford Guide to Financial Modeling

Various resources as referenced in the text

website www.thomasho.com

Copeland et al, Financial Theory and Corportate Policy (4th ed.)

Chew, The New Corporate Finance/where theory meets practice (3rd ed.)

Megginson, Corporate Finance Theory

Brealey Myers Allen, Principles of Corporate Finance (8th ed.)

Panjer (ed.), Financial Economics

Gollier, The Economics of Risk and Time

Term Paper                            20%

Cases & Assignments        25%

Mid-term Exam                      20%

Final Exam                             35%

Both the syllabus and the grading plan are subject to change with appropriate advance notice to the class.

Week of

Topic(s)

# Material

Aug. 28

decisions about value; expected cash flow; valuation: DCF; risk: OCC

Ch.1, class notes

Sept. 4

financial statement analysis – where (when) is the cash?

handouts, notes,

pages 506-509

Sept. 11

efficient market hypothesis; cash flow variance; CAPM

Ch. 2, class notes

Sept. 18

CAPM and alternatives; market price of risk; certainty equivalents

Ch. 2, class notes

Sept. 25

valuation of the firm: comparables; dividend discount; cost of equity

Ch. 12, class notes

Oct. 2

valuation within the firm: debt; FCF; WACC; MM theory; taxes

Ch. 12, class notes

Oct. 9

valuation within the firm: alternatives to DCF; FCF discount; rebalancing

Ch. 12, class notes

Oct. 16

mid-term exam Oct. 16; practical valuation issues

class notes

Oct. 23

practical valuation issues; where does value come from?

class notes

Oct. 30

option value model; growth and real options

Ch. 12, Ch. 13

Nov. 6

strategic value of the firm;  strategic value within the firm

Ch. 13

Nov. 13

option value vs. DCF;  financing decisions: MM, pecking order, Lintner

Ch. 13, Ch. 14

Nov. 27

financing decisions: trade-off; cost of distress

Ch. 14

Dec. 3

financing decisions: contingent claim point of view; final review

Ch. 14, class notes

Final Exam TBD week of Dec. 10 - 15

All

# Term Papers

A paper will be due on Dec. 7. You may choose any of the main topics in the syllabus (i.e. sections in the text or from class notes) and prepare a paper covering the topic in more depth, or presenting extensions of the material in the text or class notes, after consulting outside references.  Alternatively, you may choose a topic from sections of the text not covered in the syllabus and explain how it works, including its connections with the material covered in the syllabus.

Cases and Assignments

Significant business cases or homework exercises based on the material most recently covered will be assigned approximately every two weeks.

Both the syllabus and the grading plan are subject to change with appropriate advance notice to the class.