University of Connecticut

Financial Mathematics II

Math 289/369

Spring 2004

Classes: MW: 4:30 – 5:45                                   Instructor: James G. Bridgeman, FSA

PB 38                                                      MSB408

Office Hours: M:   12:00 – 1:30                          860-486-8382

Th:    2:30 – 3:30                          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 Thursday May 20, 2004)

# Specific Course Content

Introduction to the Applied Mathematics of Corporate Finance

# Required Text

Brealey & Myers, Principles of Corporate Finance (7th ed.)

# Supplemental Material (not required)

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 (3rd ed.)

Megginson, Corporate Finance Theory

Term Paper                            10%

2 Take-home Quizzes           10%

Mini-cases                            20%

Mid-term 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.

Week of

Topic(s)

# Chapter

Jan. 21

Financial profession – decisions about value; cash flow; valuation

Ch.1, 2

Jan. 28

Net present value principle; opportunity cost of capital;

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

Ch.2, 29, 4

Feb. 4

Free cash flow; equity valuation; project net present value

Ch.4, 5

Feb. 11

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

Ch. 6, 7

Feb. 18

Market price of risk; capital asset pricing model

Ch. 8

Feb. 25

Risk adjusted opportunity cost of capital; handling cash flow uncertainty

Ch. 9, 10

March 3

Where value comes from; measuring value-creation

Ch.11, 12

March 17

Market returns; market efficiency; mid-term exam March 17 (thru Ch. 12)

Ch.13

March 24

Sources of financing; accessing financing

Ch.14, 15

March 31

Dividends and returns; debt leverage on returns

Ch.16, 17

April 7

Debt effects on expected cash flows

Ch.18

April 14

Debt-adjusted opportunity cost of capital -- WACC

Ch.19

April 21

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

Ch. 20, 21

April 28

Real options and their value

Ch.22

Final Exam TBD week of May 3 - 8

All

# Term Papers

A paper will be due on May 3.  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.

# Quizzes

There will be two take-home quizzes assigned, the weeks of Feb. 18 and April 14.  They will be

designed to challenge and you may work in teams to come up with the answers.   .

# Mini-Cases

Graduate students (369) will submit the mini-cases 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 mini-cases 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.