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 8604868382
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)
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
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 

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 valuecreation 
Ch.11, 12 

March 17 
Market returns; market efficiency; midterm 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 
Debtadjusted 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 

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.
There will be two takehome 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. .
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.